SUE PHILLIPS; ACCOUNTANT, AND LOVER OF SUSTAINABILITY, BOTH IN BUSINESS AND IN THE OTHER SENSE, HAS WRITTEN A THREE PART SERIES ON THE IMPORTANCE OF TAX FOR BRANDS AND BUSINESSES CLAIMING TO BE SUSTAINABLE AND ETHICAL. READ HER TIPS AND EXPERT ADVICE ON THE SUBJECT.
Tax (and perhaps finance generally) can seem quite daunting if you're not an accountant . . . But clearly it's essential for your long-term business success to understand your company's financial performance. Remember, sustainability is often defined as people, planet and profits! So what I'm aiming to do in this three-part resource on tax is to:
1. explain why tax is a key ethical and sustainability issue;
2. explore whether tax transparency can potentially benefit your reputation; and
3. outline some practical tips for managing tax.
Practical tips for managing tax
If you've read the previous two sections of this resource on tax, you'll be aware that there's a world of difference between tax planning and tax avoidance. Tax planning is an acceptable and common business practice, and can help give you that essential competitive edge.
Every business is different: for example, you might be a sole trader, part of a partnership or a limited company; a large or a small business; operating purely within the UK, or importing and exporting internationally; you might have employees, or not. So it would be impossible, and irresponsible, for me to attempt to provide specific tax advice as such. But I hope these tips are helpful in thinking about how best to manage tax in your business.
- Ultimately, even if you take on a bookkeeper or accountant to look after your accounts and/or complete your tax return, you're responsible for the content and accuracy of your submissions to HMRC. It's sensible to have sufficient basic financial knowledge to be confident in commissioning, discussing and authorising financial work carried out on your behalf. If you lack confidence in this area, you might want to investigate training in basic finance for non-financial managers. Even a short one-day course could be beneficial.
- Make sure your accounting records are in good shape (accurate, up-to-date, and with a logical structure to assist retrieval and analysis of financial information). Cross-reference online and paper records. This will make things easier for you and your bookkeeper or accountant not only for tax return purposes, but also when it comes to producing financial statements and undertaking audit or independent examination. If your financial systems are efficient you're more likely to pay lower professional fees than if this isn't the case.
- Make sure you're comfortable with the difference between profit and loss, and cashflow. Your accounts may indicate profits, but that doesn't necessarily mean you'll have cash available to pay your tax when it falls due. This is particularly likely to be a potential problem if your company is small-ish but expanding rapidly.
- Record key deadlines for submission of tax returns and for payments, and plan to meet them to avoid interest and other penalties.
- If there's a risk you might not be able to pay your tax on time, resist the temptation to bury your head in the sand. Contact HMRC immediately as you may be able to agree more time to pay, or arrange to pay your bill in instalments.
- Make sure you discuss tax with your accountant before the end of the tax year. You may want to plan your income and/or expenditure during the period in question in order to manage your tax as efficiently as possible: for example, if you're a sole trader approaching a tax threshold (where you'll pay a higher rate of tax above a specified level of profit).
- And make sure you have confidence in your accountant to help you achieve your long-term business aims. Do they have an appropriate level of bookkeeping or accountancy qualification? Do you speak the same language? Not literally, but do you find conversations with them confusing or do they explain things using terminology you can understand? Do they keep you updated with relevant developments in tax law, and other financial matters? Do they relate your finances to your overall business plan and performance? Is their focus backwards on the accounts to date; or do they help you plan for the future?
In summary, remember that paying attention to financial sustainability, including (fair) tax, should put you in a better position to achieve the social and environmental sustainability that, hopefully, underpins your conscious business model.
Contributed by Sue Phillips (ACCA)
Gov.uk on 'Money and tax'
Gov.uk on 'Business tax'
'Supporting Small Business' (HMRC publication)