In these austere times, with headlines abounding in the media that big business doesn’t pay its fair share of tax, can tax planning ever be, or perceived to be, a good thing? Our sister company, Gateley Capitus, thinks it can and Director, Aubrey Calderwood, is here to explain how.
Clearly there is much bad tax planning and the practice of “avoiding” tax, whilst not technically illegal, has become synonymous with something that is seedy, dirty and not something that a morally upstanding company should be engaged in. The “Double Irish”, the “Dutch sandwich” and myriad other convoluted and aggressive tax avoidance schemes are endlessly doing the rounds but most of them would not pass anyone’s “sniff” test.
So, if that is bad tax planning, can there ever be such a thing as good tax planning? Well, the UK Treasury certainly seems to think so. They don’t shout about it or explain it particularly well but contained deep within the UK tax code, a range of tax-based fiscal incentives exist that the Government actually wants businesses and individuals to claim.
Why? Because by making these incentives available to businesses in a very targeted way, they are hoping that companies will be more inclined to act or behave in a certain manner. And if they don’t behave in that manner, they will be taxed instead. The ultimate carrot and stick!
If, on the other hand, they do claim these incentives, they will be allowed to keep the tax that they would otherwise be required to pay and, through the tax regime, strongly encouraged to use that money to help grow their businesses. This will allow them to invest in things like more efficient plant and equipment, carry out research into the development of new products or consider undertaking projects that would otherwise be uneconomic to invest in.
The intended result is that companies will invest, companies will grow, the UK economy will strengthen, jobs will be created and ultimately, peoples’ lives will be better. In anyone’s book, that kind of tax planning can only be ‘good’!
So, if all of these legitimate tax incentives are available to companies, why do more companies not claim what they are entitled to? It is estimated, for example, that there is some £96 billion in unclaimed capital allowances within the UK economy. Clearly, it wouldn’t be in the Government’s interest if all of those businesses that hadn’t claimed, now suddenly decided to do so. But the more important question is, why did they not claim in the first place? The answer to that surely lies in the complexity of the UK tax code – some 17,000 pages of light reading, if you’re interested. It is fiendishly complex.
For example, how would a company moving into new offices know that perhaps 60% of its fit out cost would qualify for tax relief? Or, if it wanted to invest in some cost saving measures, such as energy efficient lighting or boilers, that 100% of that cost may be immediately deductible against tax? Or, how about an old vacant building that might make a good base for a new corporate HQ but would be costly to redevelop? Depending on the location of the building, the entire refurbishment cost of that building may qualify for tax relief.
Or, what about the company that has thought of a new product or a new way of carrying out a process but doesn’t realise that the cost of developing that product or process might attract tax relief of 230% on those costs?
One thing’s for sure – you certainly won’t find this information clearly set out in the tax code. There is no simple list that says “If you’ve done this, claim that”. It’s all down to the ability of the taxpayer to sift through, decipher and apply the legislation. So, many companies rarely claim what they are legitimately entitled to claim which means that their tax burden is increased, their cash diminished and investment curtailed.
If you think this might be you, what can you do?
If you feel any of the scenarios above may apply to you, we recommend that you review your position to see if you might be able to claim additional tax relief. You can then decide if the potential relief available warrants instructing an adviser to process a claim on your behalf.
Gateley Capitus offers a free review to establish if there is scope for improving a client’s position, so if this is of interest, please contact Aubrey Calderwood email@example.com or Kevin Meyer firstname.lastname@example.org for a confidential, no obligation discussion.