Adapting to such a changing environment is something that every business is profoundly used to. But there is another side to it as well. As a business changes and evolves, its planned Tax position changes too. And so often, this is a side that goes overlooked.
In general, a business has a good idea of what taxes it is liable for and these are predicted/forecast at the beginning of the year. As a business changes, so does its Tax Position, and so do some of its forecasted tax liabilities.
Here’s some examples that can lead to a change in the Tax Position of a business:
- An increase in the forecasted net profit at the end of the year.
- An increase in the number of employees.
- An introduction of a new service which is liable for a tax that the business is not aware of.
- VAT adjustments and reconciliation.
- New and unplanned investments by the business into new categories.
What is a Tax Health Check?
A tax health check is essentially a review of a taxpayer’s tax and accounting records to ascertain the level of compliance with relevant tax laws. The exercise may also involve quantifying the potential tax exposures and evaluating recommendations for improved compliance.
When should you Conduct a Tax Health Check?
Tax Audit Preparation
A key moment when a business owner or taxpayer needs a Tax Health Check is when a Tax Audit is due. In this context, a Tax Health Check will provide the owner/taxpayer with a firsthand view of the tax liabilities and importantly bring up any red flags that have gone under the radar. The idea here being that you can get ahead of the audit by fixing oversights beforehand without the fear of fines and penalties. Business that want to manage their risks adequately will often not wait for a Tax Audit from the Tax Authorities but will be proactive towards a Tax Health Check.
Validating Internal Processes
A business has to rely on its internal accounting and finance teams. It has to rely on them to provide valid, accurate data as well as error-free calculations of what the relevant tax liabilities are or should be.
For a business owner though, it can be difficult to validate this information due to the complex nature of most Tax Laws. A Tax Health Check from an external vendor in this context is the perfect way to validate all internal workings, procedures and processes.
Where the calculations are proven accurate, the business can continue business-as-usual. Where gaps are found, the business has the opportunity to address them as early as possible.
Partnerships, Mergers and Acquisitions
Anytime a business invites new partners, or is in the process of a merger or being acquired, a Tax Health Check is paramount. It gives the new entity a clear and validated picture of the entire businesses tax position both from an investment perspective as well as an operational perspective.
Investors will often ask for, or demand, a Tax Health Check to validate the business model, the cost of doing business and the overall business viability.