18 May 2015
Benjamin Franklin once said that "there are only two certainties in life – death and taxes". Yet in recent times we've seen an ever changing tax landscape.
This ever changing landscape is making our tax systems more complicated and this is creating uncertainty amongst individuals, businesses and investors as well as the general public and society.
Businesses are battling their way through volumes of tax legislation and deciphering how, who, when, why and where it applies so that they’re not slapped with a tax bill and penalties from the tax authorities, or worse still, being front page headlines in the media.
Several years on and we still appear to be feeling the effects of the financial crisis. People were left financially vulnerable as austerity measures were brought in by national governments to cut public spending and reduce budget deficits, whilst trying to revive the economy. There’s been increasing pressure and scrutiny, particularly from the media for governments to raise tax revenues and address the ‘tax gap’. This is the difference between the revenues which tax authorities view should come in and the actual amount which is actually collected. Tax avoidance and evasion contribute to the tax gap and reduces government spending on public services like health and welfare. Therefore, it’s been at the top of political agendas to tackle tax avoidance and evasion.
We support the Government’s aims of tackling tax avoidance and evasion as we believe that all tax payers (businesses and individuals) should be taking full responsibility for their tax affairs and be paying their fair share of taxes. Taxes provide public revenues for governments to meet economic and social objectives so paying tax is everyone's contribution to society. However, the current approach to tax policy is creating administrative and compliance burdens which are diverting attention away from the things that would actually revive growth and prosperity in the economy, like pension tax relief reform or tax incentives to support affordable housing.
We’ve seen a whole host of initiatives being introduced including ‘Base Erosion Profit Shifting’, ‘Financial Transactions Tax’ and ‘Common Reporting Standards’ to address tax avoidance and evasion. Yet due to the frequency and pace at which this is all happening, taxpayers are finding themselves trawling through reams of ambiguous and inconsistent legislation and the lack of clarity creates uncertainty in our tax systems. The 2015 UK Finance Bill, which was recently passed into law only after one day of parliamentary debate, is 340 pages long, containing 127 sections and 21 schedules. We’re are also expecting a second Finance Act this year following the May General Elections. No doubt it will be similar in length.
The lack of certainty in the tax system essentially creates risk for businesses. Tax risk management has become much more important in recent years because tax is no longer a back office function that operates in a silo from the rest of the business. Instead it’s creeping its way to the top of the agenda in the boardroom. Managing tax risk is about managing the uncertainties and understanding where they come from and putting processes and procedures in place on how to deal with them.
At Legal & General, we’ve a clear tax strategy where tax risk governance is an integral part of the operating model. We assess, analyse and monitor the initial and on-going impacts of any new tax measures introduced by the Government. We work with the Government where appropriate, on the development of sensible tax policy and we also actively engage with trade bodies and local tax authorities to manage the unintended consequences of changes in tax legislation. We have an open and collaborative approach with our Customer Relationship Manager at HMRC where we engage in real time discussions and are transparent about our tax affairs.