A guide to business tax compliance in the UK

19/07/2023

Have you ever wondered why businesses have to pay taxes and what would happen if they stopped?

In this guide, we’ll give you an overview of tax compliance in the UK. We’ll answer the questions you might have about this topic, including what tax compliance is, why it’s important and what challenges it poses to businesses.

What is tax compliance?

Tax compliance is when a business agrees to and obeys the tax laws and regulations in the countries it operates in. It’s the opposite of tax evasion, which is when a business pays less tax than the government asks from them.

Why is tax compliance important?

Taxes are an important part of a nation’s economy. They fund public services such as health care, education, and transportation infrastructure. So, tax dodging steals money from the public. If individuals and organisations stopped paying taxes, then these services wouldn’t be possible – to the detriment of the entire country.

Tax compliance may be laborious but it’s also a non-negotiable task. Tax evasion is illegal and a business must pay all its relevant taxes on time to protect its licenses and continue to operate.

Non-compliance with tax laws can have serious consequences, including:

  • Expensive fines and penalties
  • Criminal investigations
  • Damage to brand and reputation

What taxes do businesses pay in the UK?

There are several taxes that businesses pay in the UK but the most common are:

  • Corporation tax: All businesses based in the UK must pay tax on all their profits made domestically and overseas. This is levied on a business’s income, usually at the national level.
  • Capital gains tax: This tax is charged if a business sells, exchanges or disposes of an asset and makes a profit. The government charges tax on the gain that’s made – the difference between how much it was sold for and how much it was initially bought for.
  • Value added tax: Also known as VAT, this tax is payable on goods and services and is levied at each stage of the supply chain where value is added. Businesses must register for VAT if their turnover is more than £85,000 in annual turnover, and businesses that are VAT registered must ensure VAT compliance.

What challenges do businesses face with tax compliance?

There are several challenges that businesses face with tax compliance, including but not limited to the following.

  • Arbitrary changes: Local and international bodies have the power to change regulations at their whim, so tax policies are constantly changing.
  • International trading: Taxes become more complex for businesses to deal with when they expand beyond their local markets. Trading internationally requires knowledge and experience dealing with the tax regulations of foreign nations, in addition to the business’ country of residence.
  • Global mobility: The pandemic proved that businesses can successfully operate with employees in locations around the world. Failure to ensure compliance with local tax regulations concerning employees based overseas can lead a business to incur expensive penalties.

The bottom line

Tax compliance is a dynamic area in which the landscape is constantly changing. It poses a number of serious challenges to businesses. Nevertheless, ensuring tax compliance is a non-negotiable task for any business that wants to avoid illegal activity, expensive fines, and reputational damage.

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