Rethinking strategy – tax considerations for businesses

By Lyndon Firth, Tax Partner and Head of Indirect Tax Services in the North at BDO

Potential tax rises have hit the headlines with businesses looking ahead to an Autumn Budget Statement for clarity. It’s already been a year of upheaval and there’s an expectation that attention will be drawn back in the near-term to more traditional tax cash strategies as Government stimulus packages come to an end. With a date still to be announced for the Chancellor’s next statement, what do businesses need to consider in the here and now?

Earlier this month we asked 500 mid-sized businesses how they were feeling about current trading and what lies ahead. In the North, 49% of businesses have seen revenues drop because of Covid-19 with many citing their operational priorities as generating sales, making loan payments and cashflow. With this in mind, we look at the tax considerations businesses can be making now to build resilience into their organisations and help to address these immediate concerns.

A re-focus on compliance
It’s fair to say that ‘business as usual’ at HMRC was largely put on hold due to the need to manage the financial crisis. Having deployed a significant number of staff to emergency Government packages, processing routine enquiries has slowed right down – with extended deadlines put in place, and audit activity largely stopping. The speed of new tax policy implementation also left gaps in legislation – an inevitable consequence given how quickly measures were introduced. The important question to consider as a business is whether you’d be considered to have taken a reasonable position on ‘grey areas’. HMRC has been clear that businesses will be challenged on compliance activity around claims, with criminal and civil powers to investigate companies around furlough mistakes, for example.

Reinventing products and services
Despite all of the challenges that the pandemic has presented to business, many have taken the forced changes to normal working patterns, to innovate and to drive positive change within their businesses. This may have tax consequences, which can either be positive or negative – for example, additional tax relief via research and development tax credits, versus potential unforeseen obligations. While innovation should not be discouraged, especially in times of adversity, the important point to remember is that the tax implications of such change should always be considered in good time.

Revitalising cashflow
When it comes to cashflow, companies could take the opportunity now to review the approach they have taken to capital allowances in the past and consider if there is scope to improve their existing position, reduce the income or corporation tax now due or to generate repayments.

In a similar way, there is potential to improve a business’ working capital position through VAT. There are dozens of non-aggressive techniques for releasing free cash from within the VAT throughput of a company.

Given the unprecedented support that the Government has pledged to businesses over the last few months, it’s essential that companies carefully navigate their way out of the crisis, ensuring they meet ongoing financial obligations, particularly as attitudes to support change and stimulus packages are withdrawn. Although many of the challenges we’ve faced this year are shared, each business has a unique set of circumstances to consider and we’d welcome a conversation to discuss in more detail.

Lyndon leads a team of 15 indirect tax specialists who work with entrepreneurial businesses and large organisations across the North.
Tax Partner / North Head of Indirect Tax Services
+44 (0)113 290 6188 (DDI)
Indirect Tax Director
+44 (0)161 817 7599