Tax avoidance - is it good or bad?

Listening to coverage of the pre-election budget got me thinking about tax.

As you know, there has been a great deal of publicity in the media about individuals and organisations using loopholes to avoid paying tax. I didn’t want to jump on the moral bandwagon, there are enough people doing that already, but in one discussion I heard recently on the radio, a participant tried to justify why a certain major coffee beverage provider was not paying corporation tax in this country by saying that they were creating  jobs which pay tax and NI, buying and selling products which pay tax and supporting the UK economy through this diverse chain and that the corporation tax was only a tiny element and that they had contributed significantly to the UK economy.

Aboslutely true, but a load of old baloney!

We all need to and should want to pay our taxes. Why? Well if we want to live in a civilised country where we have a support network for those who are less fortunate, then this can only be funded through tax. If we want first class facilities then we need to pay taxes.

Tax avoidance is either morally acceptable or unacceptable depending upon the degree. We should certainly take advantage of the allowances and provisions made to us, so that we are not paying excessive tax (after all, tax incentives are nothing more than tax avoidance schemes developed to encourage us to act in a particular way which the Government want us to do). Our accountants can and do help us find our way through this maze.

However, I speak to a great many business people, including accountants, IFAs and many others in the financial sector and, for a few of them, the view on tax seems to be that it is a bad or unfair charge. Some put enormous effort and resource into tax avoidance schemes, occasionally using dubious methods, so as to avoid tax rather than spend this effort and resource on how to grow to make paying the tax less painful. It seems, in some circles, that clever tax avoidance has become something to be admired.

Well in my world it isn’t. It’s just a form of cheating everybody else who does pay their taxes.

Of course, the whole attitude isn’t helped by so many in the public arena, who are happy to preach one thing and then just seem to devote their efforts to lining their own pockets. However, does this mean you should follow their example and avoid your taxes. Of course it doesn’t! Do you want to be seen as being as bad as them?

What we should all strive to be is as successful as we can and build our businesses into thriving, profitable ventures which inevitably means we will pay more and more tax. As entrepreneurs of profitable businesses our tax liability is roughly 20 % of our profits, which means there’s 80 % for us to do with as we see fit for ourselves and our businesses. Seems like a fair deal to me.

Paying tax is a nice problem to have. If we are paying more tax it means we are making more profit. I think the challenge many people have is the impact that paying this tax has on our cash flow. Once per year we are asked to pay a wedge of tax which we probably have already spent or allocated to spend on other things. So the problem with tax is not tax itself, but rather cash flow planning!

At Smart Support we have extensive success in helping our clients to pay more tax through growing their businesses, increasing their profit margins and reducing their costs. At the same time we have a range of simple tools and methods to help with planning your cash flow, so that tax becomes a nice problem to have.

So, if you would like to pay more tax please take advantage of our free initial meeting where we will take the time to understand your business and explain how we think we can help you increase the tax you pay.

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