Tax compliance and tax advice both play an important role in managing your tax affairs, but there is a key difference between the two. While tax compliance focuses on accurately reporting what has already happened, tax advice looks ahead, helping you understand how the decisions you make today could affect your tax position in the future.
Tax compliance covers the returns required to meet your obligations to HMRC, including VAT returns, personal tax returns and company tax returns. By the time these are completed, the transactions they relate to have usually already taken place, which can leave little opportunity to change the resulting tax position.
Tax advice takes a more proactive approach. By speaking to your accountant before making a significant decision or completing a transaction, you have the opportunity to understand the potential tax consequences and consider whether there is a more tax-efficient way to proceed.
For business owners, this can be particularly valuable. A decision that seems relatively straightforward can sometimes have wider implications, and getting advice early can help you understand the full picture before committing to a course of action. Read our article on when DIY tax preparation quietly becomes expensive.
Why timing matters when it comes to tax advice
Timing is one of the most important parts of effective tax planning. Once a transaction has taken place, it is often too late to go back and change how it was structured. This is why we encourage our clients to speak to us as soon as they begin considering a significant business decision.
The sale of a business is a good example. Ideally, conversations around tax planning should begin a few years before a potential sale, as certain arrangements may need to have been in place for a specific period to qualify for more favourable tax treatment. The earlier you start planning, the more time you have to explore the options available and make decisions that support your longer-term objectives.
The same applies to other business transactions. You may not immediately know whether a decision has tax consequences, which is why speaking to your accountant before taking action is so important. Even where there is no more tax-efficient alternative, understanding the likely outcome in advance means you can make an informed decision and prepare for the financial impact.
What does proactive tax advice look like?
Proactive tax advice goes beyond completing your accounts and tax returns. It comes from having an ongoing relationship with your accountant and discussing what is happening within your business throughout the year, rather than only speaking when a deadline is approaching.
These regular conversations give your accountant a better understanding of where your business is heading and can often bring upcoming plans to light before any decisions have been made. Something mentioned during a general conversation could have important tax considerations, and discussing it early gives you time to explore your options.
For more complex circumstances, specialist expertise may also be needed. A Chartered Tax Adviser, or CTA, has undertaken specialist tax qualifications in addition to the tax knowledge gained through accountancy training. Tax planning can also overlap with areas such as pensions and investments, so involving the appropriate professional advisers can help ensure your wider financial position is considered.
If you’d like to learn more about Hayward Wright’s specialist tax advice, you can find more information here.
Looking beyond tax compliance
Meeting your tax obligations accurately and on time will always be essential, but the relationship with your accountant should not end there. Independent tax advice is about understanding where you want to go and considering the tax position before decisions are made, rather than only dealing with the outcome afterwards.
At Hayward Wright, we encourage our clients to keep us informed about what they are planning throughout the year. Whether you are considering a new transaction, making changes within your business or thinking about selling your company in the future, starting the conversation early gives you more time to understand your position and consider the options available.