Tax Strategy For Your Business

A tax strategy is an official document required annually by most companies that operate in the United Kingdom having a turnover over either hundreds of millions of pounds or a turnover over a certain number of pounds. This requirement is contained in Section 161 of the Finance Act. A company may also create a "compulsory tax strategy" to comply with the regulations regarding income tax. However, both these strategies are designed to achieve the same objective; to minimise the company's liability for tax.

Compliance with the law is mandatory and failure to do so can result in severe consequences. Thus the development of an effective tax strategy which ensures its compliance is key to ensuring continued compliance and avoiding serious tax issues in future. Tax risk management is one such approach to this objective.

There are two main methods of compliance undertaken by companies in terms of UK tax strategy and risk management: Individual voluntary arrangements (IVAs) and a partnership. While IVAs are not a legal requirement, they are used as a tool by many companies in terms of their overall compliance objectives. The primary objective is to pay as little tax as possible, however this objective is likely to conflict with other objectives of the company, for example spending limits within the spend review process. Check out wealthability now for more info. 

In an Individual Voluntary Arrangement (IVA), a company agrees to pay a specified minimum amount of income taxes in return for a share of future tax credits. In effect, a company will be meeting its liabilities for the year in a structured manner in return for a future benefit. While the tax strategy for this type of arrangement is straightforward, there are important factors to consider before proceeding. These include the level of equity, the duration and magnitude of the tax liability to be met, the impact on the balance sheet, the company's cash flow and the implications for creditors.

A partnership tax strategy should be considered when a business has multiple members that meet their tax needs through the use of a business loan or equity finance. When tax credits are granted to these individuals, they are normally based on each individual's personal contribution rather than a proportionate share of ownership in the company. The benefit of this tax strategy, therefore, is that it allows a company to minimize its tax bill. The major risks associated with this approach are that the company may have to pay excessive amounts to the Exchequer, that some of its partners may not remain invested sufficiently to minimise their tax liabilities, and that the partnership may incur significant losses over the duration of the contract.

In addition to the planning stages highlighted above, many people find themselves at a strategic crossroads at tax time. They face a choice between paying too much tax to the authorities, or not having enough deductions to offset the costs of their own tax situation. For many people, the former is preferable to the latter. However, there are many people who are ignorant of the options open to them and do not take the time to plan their tax affairs sufficiently. When tax credits and deductions are calculated, these individuals may discover that they are under-provided for, or not eligible for many of the deductions they might have been entitled to if they had taken the time to do their taxes properly. Look up wealthability online to get started. 

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