IS IT WISE TO LET TAX MAKE YOUR DECISIONS FOR YOU?

Tax has a direct effect on behaviour; hence the introduction of sugar tax for soft drinks. Sometimes this behaviour is a little curious.

Did you know there used to be a time when your property tax was based on the number of windows you had? So, naturally, people bricked up their windows. Not the governments desired outcome I imagine!

When it comes to business though should we be letting the tax tail wag the corporate dog – should you let tax be the driver for your business decisions?

The answer, in my opinion, is sometimes. There are certain things that should be influenced by tax such as the timing of purchases.

For example, buying capital equipment just 1 day before the year end, rather than 1 day after the year end, will bring tax relief forward by 1 year. So, if you were going to invest and buy it anyway then do it sooner rather than later.

The structure of your business is also a decision that should be influenced by tax. For example, the tax reasons for setting up a sole trader first before incorporating into a limited company are valid, as long as you are comfortable with the unlimited liability status of being a sole trader.

How you own your car is also another important decision – company car tax is, in most cases, prohibitively expensive and there are alternatives.

Finally, you should claim for all expenses possible – many business owners forget, or are not organised enough, to claim for items spent on behalf of the business.

But when shouldn’t you worry about the effects of tax on a growth decision? As an example, the cost of the tax for a new employee should be low on your list of reasons for not employing someone. It’s a consideration but not a contender for most serious.

Growth will bring greater tax – if you trade through a limited company then you will pay more corporation tax and more VAT as turnover rises, but if you manage costs correctly then profit will follow.

If you have a difficult decision to make for your business then call us and we will see if tax should be a consideration or if you should go for it.