These are challenging times for finance directors and others wishing to manage the tax affairs of their companies.
The lucky few will already be geared up to the imminent changes of corporate tax self-assessment, payments on account, and our ever increasing tax legislation.
For others, changes will be needed: costs are likely to increase, with more resources needed to manage tax compliance and implement appropriate planning.
I believe the focus should be on tax as a cost to be managed, just like other business expenses. Tax control and minimisation should purely be part of the wider aim of maximising shareholder value. Viewed from this perspective, what might be some key components of a group’s tax strategy?
The tax role, whether provided in-house or through external advisers, needs to have its aims decided. Broad aims could include the maximising of the financial resources available for investment in the business, and the facilitation of business transactions by resolution of tax issues.
The tax strategy has to be put into proper context. Plans such as three-year forecasts or elements of corporate strategy, for example acquisitions, disposals and buy-backs, can provide useful tax indicators. An acquisitive group will have different tax needs from those of a group making disposals: the tax function needs to encompass these wider aims.
A key factor is the attitude to risk, including attitudes to required relationships with the Inland Revenue and other tax authorities. Some clients would be quite happy to take cases to the House of Lords, and not be put off by publicity; others would prefer a much more cautious approach.
For some groups, PAYE, NIC, VAT and duties are a much higher cost than corporation tax, and yet often do not get the focus they deserve. An understanding of the costs will help determine where savings or efficiencies should be looked for, all geared to providing value.
With an awareness of the above broader issues, more detailed issues can then be identified and prioritised. For instance, capital intensive groups might focus on maximising relief for capital expenditure. Groups with past or forecast losses, or surplus ACT, will be keen to make best use of them. For many groups, including acquisitive ones, maximising relief for financing costs can be key.
Most businesses should also address the impact of CTSA and CTPOA and, for those with overseas connections, the new transfer pricing rules.
Using financial comparators
Comparisons should be considered in various regards. There are obvious financial comparators, such as the accounting (or cash) tax charge as a percentage of profits, but in addition, there are many other qualitative factors. Some which I suggest are used are concerned with processes, to determine the efficiency and speed with which, for instance, P11Ds or computations are prepared and submitted, the number and extent of Revenue queries or the number of open years.
Another good test is to see the frequency with which the tax function is involved in commercial decisions, and the extent to which other functions keep those with tax responsibilities ‘in the loop’.
CTSA and CTPOA, together with other changes, will need an increase in resources. More time will need to be committed to tax matters, with attendant cost. It may be useful to reappraise current workloads, and the way external advisers are used. The best use of advisers goes further than provision of technical analysis: experience, relationships with the Revenue, and particularly commercial understanding and judgement are called for.
Significant changes can be expected to tax software in the next 12 months, as software developers keep up with the requirements brought on by new legislation. Companies should consider whether existing packages or work practices are efficient.
Now is the time for businesses to review their tax compliance strategy. Achieving the lowest maintainable cost, with full compliance with applicable legislation and involvement in commercial decisions, could be a goal for many. From such strategies, necessary actions can best be determined.
Allan Beardsworth is a partner in the Leeds office of Deloitte & Touche.
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