Tax risks can be a minefield for any business, with potential pitfalls at every turn. Throw in increasing tax governance requirements and transformational events like a Budget announcement, or a new Government, even more so.
Over the last year, we’ve been speaking to a long list of owners and management teams from mid-market, entrepreneurial businesses, and we’ve been hearing about their tax troubles with other advisers.
Unsurprisingly, there were a lot of common themes. From missed claims and misclaims to late returns and penalties, tax and its associated risks continue to perplex businesses. What’s more, they’re missing out on millions of pounds, and sometimes, even putting their reputations at risk.
We’ve taken everything we’ve learned and put together these 5 Tax Risk Red Flags. If even one of them strikes a chord, take this as a not-so-gentle nudge to get things ironed out. And, as always, our multi-skilled Tax team is here to help.
#1 FAILING TO PRIORITISE TAX
Tax considerations should be at the core of all your key strategic decisions, and your advisers should know about any big changes you’re going to make, way before you make them.
If you’re treating tax as an afterthought and not a priority, doing the bare minimum on compliance, putting off spending on specialist advice and failing to optimise your tax position, chances are, you’re leaving huge holes in your strategy and opening up your business to risk.
#2 LACK OF CLEAR, DEFINED ROLES
Treating tax as a priority and putting procedures and policies in place to manage your tax risks is one thing, but who’s going to do the work?
You should have well-defined responsibilities throughout your team so you can proactively manage tax risks and identify any potential issues. That includes having qualified and competent individuals in-house to take care of all your compliance and stay up to speed with any legislative changes, or a reliable team of tax advisers who understand your business, communicate well and act as an extension of your team.
For larger businesses, this is a legislative requirements (i.e., the SAO requirements), which can lead to personal and company fines for non-compliance.
#3 UNTAPPED TECH
Technology has become an integral part of a smoothly functioning, risk-averse tax strategy.
Are you stuck using spreadsheets and basic software day to day? Or have you invested sufficient resources into your technology package and automated as many of your processes as possible? If the former applies, it’s time for an upgrade.
Remember, Making Tax Digital will cover all taxes eventually, meaning technology will be even more prevalent in the tax world.
#4 KNOWLEDGE GAPS
The multifaceted nature of tax and its associated risks means there are a lot of bases to cover to optimise your strategy, protect your assets and manage tax risk.
An awareness of what could create risk and add value in certain areas relies on education, experience, and having great advisers. Working with a holistic tax adviser can go some way toward solving those knowledge gaps, but if you handle some of your tax affairs in-house, there are some key areas to be aware of.
Do you have a structured transfer pricing policy in place for intercompany transactions? Is your supply chain optimised from a tax and customs perspective? Are you considering cross-border expansion? Is your group structure fit for purpose? How do you retain, incentivise and reward your best talent? Are you aware of the Senior Account Office (SAO) rules? Is your team fully educated on the Corporate Criminal Offences (CCO) legislation?
So many questions. And it pays to make sure you have the answers.
#5 LACK OF TRANSACTION READINESS
Even if you aren’t planning a transaction right now, getting your business ready is good practice.
By taking the necessary steps to get ‘DD ready’, you’ll be optimising your tax structure at the same time. Then, if a transaction does come around, you’ll be able to protect or maximise value.
Optimising your tax structure will also help you prepare for other changes, like international expansion, and by staying ‘DD ready’, you’ll cut the chances of any nasty surprises significantly.
This will also allow you to consider the tax-efficient protection of assets to be retained on a future transaction, which trust us, isn’t something to plan for 5 minutes before a deal.
RED FLAGS TO FLAG?
Understanding the tax implications is fundamental to most business decisions, be that buying and/or selling a company, incentivising management, incurring capital expenditure, merging trades – the list is endless.
There are plenty of things to consider and it pays to make sure you understand the implications in advance. If you have any questions on all things tax, we’d love to chat.
