Tax planning and management are essential to the financial operations of a business, yet they are often misunderstood. It is important to remember that taxes are a business cost and must be managed as such. Taking the time to ensure the taxes of the business are managed properly can lead to a greater success.
What is tax planning?
Tax planning is an integral factor in the decision-making process of any business. It should not be overlooked, as it can have a significant effect on the legal structure and financial position of the company, business owners and managers. It is vital to consider tax planning when making important decisions for the long-term success of the organisation.
It can be a complex process that requires careful consideration of various factors such as the structure of the company, its growth plans, size and timing of purchases, expense planning, deductions, credits and the frequent changes to regulations and guidelines. With thoughtful planning, it is possible to take advantage of these changes to create an effective tax strategy.
The objectives of tax planning are twofold:
- Minimise the level of tax (be it employment, corporate, sales, property, etc)
- Maximise the time before tax needs to be paid
Tax planning requires businesses to be disciplined. They need to be:
- Forward thinking in their strategy and budgets
- Open to consultation and seeking advice when necessary
- Following through with a consistent commercial approach
- Able to be flexible if rules change
What are the benefits of tax planning?
Save time and reduce errors
Tax planning throughout the year helps to avoid the stress, anxiety and potential mistakes that come with the rush to sort finances at the end of the financial year. Taking the time to plan ahead can save time and money.
Reduce tax liability
Maintaining a healthy cash flow is essential for the survival of any business, especially during times of instability. An accountant can help you plan and manage your cash flow over the next 12 months, enabling you to make the necessary adjustments to your costs or pricing in order to make sure you have sufficient funds.
Enable future growth
Having a well-thought-out tax strategy gives businesses the foundation to make better, long-term decisions. This allows businesses to anticipate the financial future and make smart investments, as well as plan for other financial objectives.
Increased investment for growth
By comprehending the amount of tax they must pay, businesses can utilize the funds they would have previously allocated for tax purposes and reinvest them into their business.
Better decision-making for businesses
Tax planning allows business owners to have a real insight into their business and allow them to see the opportunities for change and where the business has potential for growth.
Understand and prepare for tax liabilities
Businesses can use early and effective planning to accurately determine their tax liabilities, allowing them to make informed decisions about investments that will help their business grow, based on facts and knowledge.
Why tax planning strategies are an integral part of business growth
Tax planning should form an integral part of a business’s strategy, rather than just a brief consideration at the end of the financial year. It is important to plan ahead, as it is too late to make any changes once the financial year is over and transactions have been made. Tax planning can help to save costs and increase profits.
The truth is, having a good tax strategy in place can have an important impact on a business’s profits and ability to expand. It needs to be thought out carefully, as even small decisions can have a big effect on taxes. Planning ahead is essential to make sure the business is as tax efficient as possible.
Is your tax accountant providing you with tax planning services?
If you aren’t sure whether you are getting tax planning from your accountant, then you probably aren’t. Tax planning should be a clear and structured process and conversation with clear agreed outcomes and actions that you would then ensure were executed before the end of that tax period.
At Baker Tilly Isle of Man, we are very proud of our tax planning services. We understand the significance tax plays on our client’s wealth and place enormous emphasis on tax planning to manage their overall tax position.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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