To begin with, tax reporting is an information-gathering method that is widely used by corporations and more complex family office structures to understand the entirety of an organisation’s tax position. It will take into account corporation tax, local businesses, national insurance contributions (where appropriate) and income tax. Business owners, chief operating officers, compliance professionals and senior executives can all make use of professional tax reporting services to better understand their firm’s global tax provision in all the areas of commerce they operate in.
Note that this form of global tax information reporting doesn’t just concentrate on the demands of the local tax office but will deal with all taxation matters, such as the effective tax rate and deferred taxation for tax provisioning purposes, in all of the jurisdictions a company operates in. At Tallard Management, our professional services include international tax reporting for firms and high-wealth families that may operate in more than one country. In the meantime, read on to find out more about the importance of tax information reporting today.
How Does Corporate Tax Reporting Differ From Personal Tax Returns?
In some senses, tax reporting is carried out every year by an individual who earns income outside of the UK’s pay-as-you-earn (PAYE) system. PAYE forces employers to pay their employees income tax directly to HMRC on their behalf. Other tax deductions for national insurance contributions will be available to see on employees’ wage slips.
However, businesses do not pay their tax with this system and individuals who receive their income in other ways – such as from dividend payments, for example – will need to complete a self-assessment form, usually online. This is the case for company directors, members of business partnerships and sole traders, as well as for people who earn money through indirect business income, such as landlords, for example. So, to be clear, a self-assessment is a form of tax reporting and in this tax reporting example, only one tax office is being dealt with. Whether people make declarations themselves to HMRC or have a professional complete their tax return for them, only UK-based income is generally declared under this system.
Nevertheless, many businesses earn income from overseas operations and investments. Furthermore, some UK-based businesses are subsidiaries of much larger organisations which may be, for the purposes of tax, registered in other tax regimes, such as Switzerland or Leichtenstein, for example.
Therefore, tax information reporting is usually conducted not so that tax can be paid at the correct rate in the UK – or any other tax regime – but so that corporations can get to grips with where they stand with the overall taxation strategy. Only with comprehensive global tax information reporting being conducted by experts in international tax affairs will business decision-makers know if they are maximising their potential and minimising their tax burden within the law.
The Importance of Tax Information Reporting for Businesses
Without the proper information on how much tax is being paid by an organisation and to which tax authorities, it is impossible to plan. A central feature of any tax reporting process should be to establish whether an international business or family-run company is making the most of tax allowances in certain jurisdictions. Questions that a good tax report should answer include: would reincorporating the company in another taxation regime help its corporation tax payment? Should certain investments in overseas tax regimes be realised and the money raised reinvested elsewhere? Can the overall tax burden of an organisation be reduced by investing more in research and development programmes in countries which offer tax breaks for such investments? In short, any tax reporting exercise should be looking to make as efficient use of the tax system as possible.
Understanding Tax Reporting and Compliance
Of course, tax information reporting is not only conducted to try and minimise tax burdens. Modern tax reporting requirements also place a big onus on compliance. In many cases, highly complex tax arrangements may be in place in several different tax regimes at the same time. Part of any tax reporting process must also be devoted to ensuring all of an organisation’s tax obligations have been met. For example, tax reporting and compliance measures might mean checking that tax returns have been completed among all family members who gain income from a business. Equally, it would mean ensuring that a business tax return had been filed with every relevant tax office that a firm trades under.
Without this sort of approach to effectively internally auditing a company’s tax affairs, it might be possible that a company has not been paying enough tax or making declarations that turn out not to be right. In most cases, tax officials will look more kindly on a firm that has undertaken its own global tax information reporting process and declared any inadvertent errors voluntarily than it would do if they discovered them for themselves. In this regard, tax reporting plays a central role in helping businesses to defend their reputation in whichever countries they trade – and pay tax – in. This is just as much a part of developing a good tax strategy as taking advantage of the tax breaks that are available to businesses today.
