For some of us we get more excited by 6th April than we do 1st January.
The line we can draw as the clock ticks from April 5th to April 6th is a fresh opportunity for individuals and companies to think about how they can navigate the tax system in the UK to get best outcomes.
It really shouldn’t be like this, but it is. That’s because UK tax legislation is remarkably complex. The Tax Book, not that there is such a thing, but this is an easy way of saying the complete legislative tax framework, in all its guises, is very long.
It’s not just long, it’s convoluted. This may seem a bind, or a chore, maybe even a yawn, but one thing it does, an unintended consequence if you like, is throw up lots of potential for people and businesses to pay variable amounts of tax.
That’s right, two very similar people can end up paying very different amounts of tax, likewise for companies. You probably understand this from the many headlines about big companies paying next to no tax, or office cleaners paying higher marginal rates of tax than the Chief Executives of the offices they are cleaning. The amount we all pay is, to some extent, dependent on how we structure our income, profits, expenditure and investments.
This comes from the tax dance that is going on, where there are incredibly punitive taxes applied to all sorts of things (e.g. VAT, National Insurance, Corporation Tax), offset against all sorts of tax breaks that are available, such as for business investment.
This dance is especially relevant for business owners, because those people who have a large element of control over their income, profits, where they spend money, where they invest etc. can perform the dance in such a way as to make decent money, whilst paying minimal tax.
The dance is not just about tax, because we have to think about the dog and its tail as well, for we should never end up with the tail wagging the dog, so tax should be ‘managed’ but not at the expense of business growth, ethics, cash flow or other important non-tax factors.
The balance is often a tricky one to achieve, but the crucial factor is that within the business environment there is a lot any business can do to manage their tax payments to relatively low levels, and if this can be achieved without impacting the business in any other way it makes perfect sense to do so. At the same time, the interaction between the business owner’s personal taxes and those of the business can also be managed to get a favourable outcome, it’s all about how everything is set up to interact.
Although we shouldn’t let the tail wag the dog, there are occasions when the tax breaks are so good, and the incentive so high, that it may be worth exploring using them simply for the tax benefit, and business investment, Research and Development (R+D) and so on are good examples of this.
An interesting aspect of all this is that despite the fact we have had a Conservative Government for a very long time, they have moved from policy to policy, from Chancellor to Chancellor and have been buffeted for well over a decade by crisis after crisis, and this has led to a pronounced fiscal position, whereby many announced increases in taxation have been delayed from past Budgets into new Tax Years, so every time we enter a new Tax Year, you can be sure there is something fresh being introduced or a tax rate going up. It’s the nature of this political environment that quite a lot of the nasty stuff is pushed down the line, but we get there in the end.
It’s become a situation where if you running your own business, you should treat April 6th as a time to take stock and review how you are set up to pay as little tax as possible, because you may be surprised by what is coming through in the latest year, and as with any business task getting in front of this is a good idea.
So, let’s hope it is a Happy New Tax Year, but make sure you resolve to check out your options and how the new Tax Year could affect what you – or your Business – are going to be paying.
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