Tax planning is a crucial element of any business strategy, which involves using the means available to legitimately reduce any duties owed. Tax relief, allowances, exemptions, expenses, and other tools are made available to minimise the amount of tax a company pays each year.
However, although tax avoidance is perfectly legal, it is viewed as unethical when an arrangement is used in a way that it wasn’t intended. A number of large corporations have made the headlines in recent years for using aggressive tax avoidance methods, which is often damaging to their brands.
Social issues
Tax provides funds to pay for education, healthcare and infrastructure. Government spending cuts mean that many people have to tighten their belts, so when businesses avoid paying any tax that is due it can often be viewed as unethical and immoral. Companies benefit from many of the public services paid for with the tax collected, so aggressive avoidance schemes are viewed in a negative light.
Paying Corporation Tax
Corporation Tax is the levy through which a limited company pays on its profit. Although a firm may have a high sales figure, it is possible for profits to be low and minimal tax to be paid, although this should possibly be confirmed. Companies want to maximise profits to encourage investment from shareholders, while some would probably argue that this is beneficial to society.
Tax planning
All businesses should consider tax planning to maximise profits, but use of the General Anti-Avoidance Rule (GAAR) is advisable. A financial outsourcing service will help to ensure that all tax planning by a company is consistent, transparent and accountable. Deliberately setting out to exploit a tax advantage is morally wrong and is not viewed as operating within the intent of the policy.
GAAR
GAAR came into effect in July of 2013 and is primarily intended to prevent the promotion of aggressive tax avoidance schemes, while also deterring taxpayers from signing up to such programmes. However, the guidance is complex and, as such, professional assistance may be required.
Investment in companies
Investors are becoming increasingly wary of those companies that operate unethical tax policies, with investors being selective about where they invest their cash. Customers are likely to boycott a business they believe is avoiding payment of its fair share. As such, although tax avoidance may save money, it could lead to long-term damage to the reputation of the company.
To learn more about being an ethical taxpayer, as well as to hear about a range of innovative solutions to financial issues, contact us today.