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How tax compliance affects business and what can be done to improve it

tax compliance

Individuals, company owners, and corporations must follow all laws governing the taxes they need to pay. However, legislation governing tax rates is constantly changing at the local, national, and international levels, making it difficult for businesses to keep up with them. And, it is only further complicated by the requirement to preserve clarity and transparency regarding the filing of tax return information.

This leads to tax law violations that can occasionally occur unintentionally due to ignorance of the rules and modifications related to the preparation of tax returns. The potential consequences of non-compliance with tax laws or compliance returns that are possibly rife with inaccuracies results in penalties, fines, and audits. Unsurprisingly, such an event could be disastrous for any commercial endeavor, especially if it is a new business.  Even in the event of unintended non-compliance, sometimes no justifications are accepted.

Due to the digital economy, many businesses now operate in multiple locations and may be subject to various tax obligations, making it difficult to reduce data mistakes and compile data from several sources in one location. There are several taxes that businesses need to comply with, which vary with business specifications including payroll tax, local tax, unemployment tax, use tax, and withholding tax. Business cycle and working capital are negatively impacted by any error or delay in the VAT returns or deadline extension in case of indirect tax returns.

In the UK, businesses have additional compliance responsibilities, as HM Revenue and Customs is becoming more proactive with penalties and public reprimands in the case of compliance mistakes or shortcomings. In fact, on average, as per the Federation of Small Businesses’ most recent research, UK small business spends £5,000 and 3 working weeks annually on tax compliance. This is making access to high-quality data essential as tax authorities go closer and closer to e-auditing and real-time information gathering.

Regardless of how small or large, a company is, business owners must abide by their nation’s tax regulations and regulations that control income disclosure. Newly established small business owners often delay tax compliance until the last minute, owing to their engagement with other business operations. But, deferment in tax compliance until the end of the year presents major problems when accounts and papers aren’t properly structured. Likewise, small business owners are prone to confusion and may overlook one or more standards.

Thus, it is essential to take a systematic strategy to avoid tax errors whenever and everywhere one can, because otherwise, it might become an expensive cost in the future. Correct tax compliance can be just as beneficial for small businesses as for publicly traded or massive international corporations.



Strategies to improve tax compliance



For costs to be tax deductible, they must be connected to a business. To avoid having any expenses rejected during the audit, they must be demonstrated to have been spent in the business course.



Maintaining compliance requires careful documentation i.e. keeping up-to-date, thorough, and accurate records. A record of earnings and receipts needs to be maintained for appropriate authorities to check, to ensure transparency of operations. These can be of immense help while figuring out how to fix the problem and its source of origin. The documents can be created and submitted, along with any necessary computations, electronically to HMRC.



Enhance group tax strategy to ensure tax reliefs are maximized and claimed properly. Recognize the effects of withholding taxes on dividend, interest, and royalties payments and make proper tax computation disclosures to avoid the possibility of time-consuming and expensive HM Revenue and Customs inquiries. Negotiate with HMRC, standardize the tax payment processes and keep up to date with new regulations. Keep track of and provide advice on the prompt payment of tax liabilities, including quarterly installments.



Make sure to budget expected tax payments to prevent arbitrary fines. Also, when taxes are due, always keep the estimate high to avoid running out of money.



Corporate tax registration maintenance doesn’t have to be challenging. All requirements, application submissions, deadline achievements, etc. can be achieved with the help of a good compliance partner. Businesses nowadays are also considerably more conscious of the potential reputational consequences of their tax problems. However, most private companies lack a specific internal tax function and are unlikely to be able to defend this. Therefore, for the majority of enterprises, this growing load can be managed through outsourcing.



Making your tax calculations by hand is not only time-consuming, but it also runs the risk of making mistakes. Eradicating errors can help businesses save a lot of money. Tax liabilities can be more accurately determined by automating tax processing. It can assist businesses in working more efficiently. Automating tax tracking will help you stay up-to-date with evolving legislation when business is already challenged with maintaining continuous cash flows.

Automation reduces errors, reduces fraud, and increases the accuracy of your file without the need for an in-house specialist. It involves more than increased monitoring; it keeps track of all the numerous requirements arising from new legislation requirements. Using technology-based solutions increases the coherence of tax policy. It may assist you in generating reports and making plans for future tax liabilities and will better help to prepare for upcoming tax liabilities.



Firms must guarantee they are properly computing, gathering, and filing taxes while also adhering to all pertinent regulations and legislation, which is a double challenge as the tax environment is becoming more complex. For handling business taxes, lowering errors, enhancing reporting, and assuring compliance, tax operations can be automated or outsourced.

Tax compliance is a strategic business concern that must change in response to digital transformation, the expansion of regulatory requirements, and the demand for operational resilience. Compliance is important for the long-term success and prosperity of a business enterprise. A business will undoubtedly suffer if it doesn’t file tax returns on time and pay taxes when they are due.


(The author is Mr. Navin Mishra- Director-Emerging Market, Corient Business Solutions Pvt Ltd. and the views expressed in this article are his own)

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