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Is your business strategy tax avoidance or being tax efficient?

We all like to think we’re getting the best deal possible when we buy services & products and actively seek assurance we’re not being ripped off but when it comes to thinking this way about paying tax, there is a very fine line between tax avoidance and being tax efficient.

 

A tax avoidance strategy

Tax avoidance means you are deliberately going out your way to avoid paying tax and every decision in your business is heavily influenced by answering yes to the ultimate deciding question – ‘Does this allow me to pay less tax?’.

Tax avoidance compromises your business vision unless of course, your vision was to start a business to avoid tax, in which case you are breaking the law! It is illegal to actively participate in tax avoidance strategies.

 

Being efficient with tax is different

Being tax efficient on the other hand means that you run your business in accordance with the vision you had for the business when you first started it. Every decision is heavily influenced by answering yes to the ultimate deciding question – ‘Does this action fulfill, or take us closer to, the business goal?’ Then they seek advice on how they could make the decision as tax efficient as possible.

Being tax efficient never compromises the business vision, and it is perfectly legal to look for tax-efficient ways of running your business.

 

Do you feel you have a right to pay less tax?

According to HMRC, the majority of people generally feel they have a right to avoid paying tax and actively seek out accountants to help them with this. This is NOT what accountants are for. Accountants are here to help you understand your business finances and understand the tax rules to enable you to work within them, in addition to supporting you in growing your business.

 

Be mindful of media and advertising

In my opinion, what I think is happening, is people are observing others being tax efficient, yes those rich famous people we envy from afar. The media provoke those jealous emotions by usually only reporting on one side of the story – the one that is usually portrayed as tax avoidance – to get the reader rattled which then creates a desire for tax avoidance too!

If this happens to you, I encourage you to be mindful of your emotions and recognise this is what the media do best, just like advertisers. Generally speaking, the article or image arouses emotions in you that leads to a reaction. The stronger the emotion they arouse the bigger the reaction tends to be.

 

HMRC are on it!

However, that said, HMRC and other tax authorities are aware of illegal tax avoidance and are constantly working towards eliminating it, but these cases tend to be hidden to the general public and very rarely reach the media.

The solution, in my opinion, is to change your attitude to paying tax by understanding the tax rules applicable to yourself, run your business with your vision prominent in all decisions you make and aim to have a better relationship with tax. We all use the public services our country provides, whether its health, roads, police and/or schools, thus we all have to pay tax.

 

Would like to have a better relationship with tax?

If you would like to have a better relationship with tax I highly recommend my latest book – The Magical Mix of Money & Tax.

 

Helen Monaghan

Chartered Management Accountant and Author of 12 Steps to Improve Your CashflowSuccessful Business Minds, and The Magical Mix of Money & Tax.

© HM Finance Coaching Ltd

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