Tax compliance is not the most engaging of subjects for the average person, business leader or no. But understanding the ins and outs of proper practice and regulatory compliance is nothing short of essential for those that own their own business – a majority of whom work for small-to-medium enterprises that describe two-thirds of the UK’s workforce and 99% of the EU’s business population. What follow are some of the major considerations that need bearing in mind when addressing taxation as a business.
Understanding Tax Obligations
Firstly, it would behove you to pick up on the essential tax obligations that your business or enterprise is exposed to. This can differ from business to business, and format to format. For example, business owners that work for themselves as a sole trader as opposed to a limited company are not exposed to Corporation Tax (nor, for the most part, Capital Gains Tax), but are exposed to Income Tax; indeed, all takings are treated – and taxed – as income.
Meanwhile, limited companies have a more complicated relationship with taxation ahead of them. Profits are taxed via Corporation Tax, including profits generated from the sale of chargeable assets (which would otherwise incur Capital Gains Tax for private individuals). With regard to Income Tax, businesses do not pay it themselves, but are responsible for paying their employees’ and removing it from their payslips.
Record-Keeping and Best Practice
Naturally, paying exactly that which you owe as a business entity can become a complex undertaking, with various different calculations to consider alone – let alone the myriad sources of income to set against business expenses and employee salaries. As such, record-keeping becomes the most important part of the financial process, legitimising accountancy departments even before the management of payments and other financial data enters the frame.
Bookkeeping ensures that important details are enshrined in databases and spreadsheets, and that accurate information can be given at the end of each accounting period regarding income, outgoings, ancillary sales of chargeable assets and, crucially, cashflow – which does not impact tax compliance, but does impact investor relations and the solvency of the business.
Navigating Regulatory Changes
Tax and income regulations do not exist in a vacuum, either. Indeed, regulations and regulatory frameworks are prone to change, and with relative commonality too. This is a danger for businesses not agile enough to respond to such changes, with fines and other punitive measures a possibility. It is for this reason that third-party counsel can be invaluable for keeping abreast of, and adjusting to, new changes.
Such changes expand beyond the basics of accountancy and Corporation Tax obligations, too. With climate change and sustainability becoming the issue of our times, fresh legislation is continuing to be proposed regarding new measures and avenues of taxation. These green regulations can pose fresh problems for existing businesses, and illustrate again the importance of independent advisors.
