Getting the most out of tax planning and management

Tax planning and management are some of the most misunderstood areas of a business’s financial operations, but in reality, tax is an overhead and should be treated as such. It’s a business cost that can and should be managed.

Mark Newbold explains the evolving role tax planning and management can play in a business, how to tailor your approach to your business goals and how working with the right advisor can create benefits throughout your business while ensuring you remain compliant.

Tax planning and management for SMEs

Tax planning and management are key parts of managing a business’s financial affairs.

Many people think of tax planning as the preserve of large multinationals creating complex arrangements so to pay only a small percentage of their global profits in tax. While it is true that these businesses have the resources and scope to structure their businesses to minimise tax by taking advantage of low tax countries, etc, the same principles apply to every kind of business.

SMEs can and should manage their tax affairs to reduce their tax overhead and unlock resources to focus on other areas.

The objectives of tax planning are twofold:

• Minimise the level of tax (be it employment, corporate, sales, property, etc)

• Maximise the time before tax needs to be paid

Tax planning requires businesses to be disciplined. They need to be:

• Forward thinking in their strategy and budgets

• Open to consultation and seeking advice when necessary

• Following through with a consistent commercial approach

• Able to be flexible if rules change

Tailoring tax to your objectives

Like every element of business planning and management, tax strategy is dependent on the overall goals of the business.

For example, an early stage business is unlikely to be making a profit so will not be paying any tax. The opportunity in this case might be whether tax planning can get them onto a positive cashflow by claiming a benefit such as R&D tax credits.

These are designed to reward businesses doing innovative research into new areas, which means that new companies looking to develop a product can potentially gain a cash contribution from the government. The business could also carry losses forward to offset against future profits, but most would rather have the cash in hand.

Meanwhile, a mature company, especially one looking for a sale, might look to maximise profit and taxable revenues in order to demonstrate company value. Tax planning would be more focused on the owner in order to manage unlocked capital on sale.

Levers for managing tax

When working with clients, we look at certain key areas to ensure that tax is being approached in the right way.

Operating performance

Are there any reliefs they can claim and if so, are they claiming the right amount. In our experience, many reliefs aren’t claimed because people aren’t aware of them or don’t think they apply, such as allowances for plant machinery or R&D tax credits.

Many businesses don’t realise that they are doing R&D applicable work. Clients who have successfully claimed credits include cleaning businesses and estate agents, for example.

Pension contributions

Pension contributions can be treated as an allowable business expense and offset against a company's corporation tax bill, whilst accruing in a tax free environment for the future benefit of the employee.

Company structure

Corporate structures can sometimes create tax issues or trap losses in the wrong company. Reviewing revenue streams and transfer pricing should be a regular activity.

Proactive tax planning

Tax planning is a moving target, as both businesses and legislation will alter over time.

Working with an advisor can help you adapt your tax planning to the needs of your business, your life and your family to ensure that you have the resources and flexibility you need to achieve your goals in every area while remaining compliant.

Get in touch with us to talk through how you can create a tax plan that adapts to your needs in the long term to get more from your business.