By: Clifford Frank, CEO of LexeFiscal, expert in Tax Law.
In short, every business, whether incorporated or not, must take appropriate steps to ensure that its affairs and accounting records are structured in a manner that will enable it to comply with its statutory tax reporting obligations. For example, a company must file a tax return within 12 months after the end of its accounting period in the UK. However, if it has a liability to pay tax,that liability must be paid within 9 months and 1 day after the end of its accounting period. Thus, careful tax management is essential.
What is the objective of tax management?
The objective of tax management is to ensure that the company can calculate its tax liability timely and accurately. The failure to do so will result in late filing penalties that are issued automatically and cannot be abated. That said, if there is a genuine reason for the late filing, the penalty can be waived.
More importantly, the introduction of Self Assessment tax return shifted the burden of calculating a company or an individual liability to taxation. Therefore, poor tax management can result in inaccuracies and (or)errors in calculating its tax. Which will lead to penalties and (or) prosecution if it is deemed that such mistakes were deliberate and steps were taken to conceal the error.
How is tax management done?
There is no specific set of rules that need to be followed. However, the business should ensure that it maintains accurate accounting records and good corporate governance to document decisions. Unfortunately, most SMEs and unincorporated businesses fail to allocate adequate resources or importance to corporate governance. That often leads to difficulties when trying to defend the accuracy of its self-assessment.
What is the meaning of company’s tax management?
Tax management ensures that the company understands the tax consequences of the transactions it undertakes or proposes and makes adequate provisions for any tax liability that may arise. Its financial statements are prepared and filed on a timely basis. If the company is large, it must pay its liability in advance by making quarterly payments. Therefore, tax management and quarterly reviews of profitability are required. Underpayment of quarterly instalments will result in late payment interest penalties and may lead to HMRC opening an otherwise avoidable enquiry into the company’s self-assessment.
What is the difference between tax planning and tax management?
Tax planning attempts at looking at the future, based on current tax legislation when considering a transaction that will result in a lesser tax liability than otherwise, had no planning been undertaken.
E.g., Company X, a trading company that has accumulated a cash balance of £1,500,000 among other assets used in the trade.
Mr X shareholding qualifies for Inheritance Tax Business Property Relief (BPR). Therefore, on his death or, should he wish to settle the shares into trust for the benefit of his adult children etc., there would be no lifetime or death IHT payable. However, without planning, the BPR would be restricted by the cash held by the company because that asset is an excluded asset for BPR. However, with planning, the cash asset can become a qualifying asset, and Mr X maintains his 100% BPR relief.
Tax management ensures that adequate records are maintained to ensure that the company or individual can accurately calculate their liability to tax and make payment of any liability due within the statutory time limit.
What are the tools of tax management?
There is no specific set of tools available. However, the business should ensure that it has a sound accounting system that complies with Making Tax Digital(MTD) and adequately trained personnel because the submission of information to HMRC is moving to ‘Real-Time Submission.’ Engage a competent tax advisor independent of the accountant.
What are the benefits of tax management?
Tax management benefitsare peace of mind for the entrepreneurs, knowing that their tax affairs are managed, filed timely and financial provisions are made to ensure that what is due to Caesar is rendered unto Caesar.
To know more or have a no-obligation meeting with LEXeFISCAL LLP, contact either of our partners.
By Dr Clifford J Frank,
Senior Partner: LEXeFISCAL LLP
Partner: LEXeFISCAL LLP