It is fair to say that over recent years the fight against tax avoidance has been stronger than ever before and, all in all, it has been successful. Indeed, we are now seeing businesses being recognised for paying the right amount of tax, committing to openness and not adopting any form of aggressive tax avoidance by being awarded the Fair Tax Mark.
In a nutshell, the Fair Tax Mark is the official Kitemark for good taxpaying companies and organisations. Businesses that apply for and are awarded it essentially demonstrate they are transparent about their tax affairs and seek to pay the right amount.
By securing the badge, the reputation and perceived worthiness of the business is likely to be improved. In addition, consumers who are concerned about tax avoidance are likely to be reassured that the business is not engaged with such schemes and reward them with their custom.
The Fair Tax Mark provides a business with the following:
- A confidential initial report and recommendations
- Guidance and templates to improve reporting
- The option to display the Fair Tax trademark
So what do you have to do to get this “gold standard” of openness and fairness in relation to your tax affairs? The following is a short summary of the process:
- First, you have to apply. It is not just given on merit by some judging panel.
- The Fair Tax Society will obtain copies of your accounts from Companies House and assess them against the Fair Tax Mark criteria (see below).
- It then draws up a report showing how you or your accountant can improve your reporting.
- You confirm changes and purchase a licence to use the Fair Tax Mark.
Licensing fees are banded according to a business’s turnover. Half the fee is paid in advance and covers the cost of an assessment. The remainder of the fee then purchases the licence to use the mark for a period of one year.
The value of the Fair Tax Mark criteria is intended to be delivered in two ways: it protects the business from reputational and financial risk, at the same time as projecting an image of being open and honest to consumers and investors. On this basis, it requires commitment from the business not to engage in aggressive tax avoidance and assesses the quality of a business’s publicly available information – i.e. a full set of accounts on key tax and transparency issues. More details of the requirements can be found on the Fair Tax website.
SSE (formerly known as Scottish and Southern Energy) is the first business to secure the Fair Tax Mark. It is reported as seeing fair payment of tax and the obtaining of the Kitemark as not just a cost but also a marketing tool.
Its current advertising campaign makes it clear it pays the tax it owes “down to the last penny”. It also makes it clear that the obtaining of the Fair Tax Mark means it rejects the use of tax avoidance schemes and the use of havens to reduce its liabilities.
In a competitive world (with strong public and official sentiment against aggressive tax avoidance), the Fair Tax Mark could be seen as an effective means of differentiation. Energy supply has become increasingly competitive so it will be interesting to see what the SSE experience is like.
A recent survey by PricewaterhouseCoopers found that three out of four companies agreed it was important to be seen to be paying their “fair share” of tax.
It is thought the new Fair Tax Mark might appeal to businesses in sectors where the competition has been “named and shamed” as avoiders. For example, small and medium consumer businesses, such as small chains of coffee shops, could display the logo to woo customers from larger competitors that have been associated with negative tax-related stories.
The Fair Tax Mark allows companies to depress their tax payments using legitimate tax breaks but demands that companies wishing to display it must be transparent about how it reaches its total tax contribution. This is important. Companies should understand that paying a lower effective rate of tax due to the use of legitimate, specifically permitted reliefs and exceptions (for example, pension contributions) is perfectly acceptable. This is equally true for individuals who may, in the light of “naming and shaming” campaigns together with the general anti-abuse rule, believe (wrongly) that all forms of tax planning are frowned upon. That is not true and individuals need to be reassured on this. Tried and tested tax effectiveness specifically permitted by the legislation remains effective.
Tony Wickenden is joint managing director at Technical Connection