Keeping tax simple – declutter your business

Political and economic changes mean tax regulations are becoming increasingly transient: so how can you simplify your own processes and stay afloat?

As we head for a second Budget in 4 months yet more tax legislation is promised. Remember that the last budget created a record for the largest Finance Bill in history.

As tax legislation gets more complex, and politicians clamber over each other to block alleged loopholes, mainly of their own making, businesses are increasingly looking to simplify their tax affairs.

The burden of dealing with HMRC, self-assessment returns, filing information electronically, meeting reporting deadlines, as well as keeping good records means the administrative challenge for businesses can be considerable. Failure to comply with reporting deadlines can result in penalties, many of which are geared to tax.

Unnecessarily complex structures and transactions only add to the difficulties and can create uncertainty.

>See also: Does altfi herald a golden age for small business?

Laurence Field, head of corporate tax at national audit, tax and advisory firm, Crowe Clark Whitehill provides a list of straightforward ideas to declutter your business, make your life easier and help you get on with making profits.

1. Review your structure

In the last four years, anti-avoidance legislation has made complex and contrived structures obsolete. Do more complex groups really need all those subsidiaries? For example, some companies should be asking, why is there a partnership in the structure? Go on a spring clean and work out what you really need, get rid of the rest.

2. Understand what the shareholders want

For many businesses, shareholders want Entrepreneurs’ Relief on exit, but has the company worked out if they will qualify? If not, check. If you’ve checked and don’t qualify, see if you can do something about it. The investors will be pleased.

3. Sort out your incentives

Many companies have a mixture of cash bonus, approved and unapproved option schemes, all with different tax treatments and reporting requirements. Do you really need them all? Are they still fit for purpose? Can you consolidate them? At the very least, timetable what needs to be reported and when.

4. Understand the consequences in advance

Know how you are going to report unusual transactions and costs before you start them. It saves time later on and helps you classify them correctly in the accounting system to make reporting easier.

5. Keep good records

It’s a drag, but document what you have done, why you have done it and who you have done it to.  Ultimately your tax affairs are only as good as your records.  Timely, written documentation is always the most convincing to HMRC.  It speeds up dealing with queries and allows you to focus on running your business.

>Related: How can I reduce my company tax bill?

For anything out of the ordinary a legal agreement is useful, often there can be more than one way if interpreting a transaction for tax purposes and HMRC doesn’t always see it the way you do. A legal agreement clears up any confusion, often simplifies the reporting of the issue and helps get you the treatment you want.

6. Don’t bury your head in the sand

If you think you’ve got a tax problem deal with it now. The situation rarely becomes better through waiting. Trying to work around a problem complicates the key job of running a business.

7. Ensure commercial reasons for your transactions

Check you understand the commercial reasons for any part of a transaction that has a particularly good tax outcome. Non-commercial steps and transactions that have no purpose other than to create tax savings will often be challenged by HMRC. They clutter up your accounts and can make it difficult to understand the real results of the business.

8. Could it be too good to be true?

Unless you thrive on stress or really want to ‘stick it’ to HMRC, stay away from tax schemes. They might seem to work now, but they can easily unravel in a few years’ time. Review whether there is anything that feels aggressive that’s been done in the past. It might not be too late to unpick the position.

9. All tax planning isn’t bad

Of course you should be trying to run the business in a tax efficient manner. There is no point in paying more than you need. By decluttering your business you can focus more easily on working out where you pay your taxes and why. If you don’t like the answer, you can do something about it.

Further reading on tax: Enterprise Bill – don’t be scared of transparency

Praseeda Nair

Kellen Rempel

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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