In wintry economic conditions, Dawn Elliott, tax partner with KPMG’s middle market practice, explains how carefully tending your tax plans can help feed growth until the spring
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he most successful companies in the UK are those that respond to the challenge of achieving continual core growth. In an uncertain economy, smaller businesses will be focusing on their strategy for organic growth, often giving them greater scope than they previously realised.
Well-structured tax planning cannot only help release valuable cash back into a business looking to grow, but once growth has been achieved, the need for more sophisticated tax planning strategies will also come into play, adding value to meet your needs is a key factor in setting a tax strategy to maximise value for the long term. Your strategy needs to take account of your current and expected future activities and be flexible enough to meet challenges that arise as your business develops and tax rules change. In this way, your business structure can be varied to maintain and add further value to a growth strategy and meeting a company’s changing needs.
Therefore, it is important to keep your tax plans under review as economic conditions and your business changes, in order to maximise your tax position. For example, if your strategy has given your business a new direction, selling off non-core interests can potentially be tax-free under the substantial shareholdings exemption, if the transaction is structured in the correct way.
Since tax remains one of the largest costs faced in generating wealth, considering the structuring options that may best
meet your needs is a key factor in setting a tax strategy to maximise value for the long term. Your strategy needs to take account of your current and expected future activities and be flexible enough to meet challenges that arise as your business develops and tax rules change. In this way, your business structure can be varied to maintain and add further value.
Raise pay to cut costs
Employment costs are one of the largest costs of running a business and there are many ways that employers can make a significant reduction to this expense without reducing employees’ net take-home pay.
It is also worth noting that many of the ideas are viewed as unaggressive by HM Revenue & Customs (HMRC). In fact, with careful planning, employers can actually increase their workforce’s salary and benefits package, while reducing the company’s overall remuneration bill.
The key is to examine the benefits currently being provided to employees and whether they can be delivered in a more efficient way for tax or National Insurance (NI) purposes. It is often most cost effective to provide benefits through salary sacrifice, especially if the reward itself attracts no tax or NI. In addition to receiving a valuable benefit, employees generally save both tax and NI on the reduction in their gross salary (for a basic-rate taxpayer, this would amount to a 33% saving) and businesses save employer’s NI contributions at 12.8% on the same amount.