Wait, what? You’re an accountant who is looking to make me pay more tax? Are you mental? Why on earth would I want to pay MORE tax?
Yes, you’ve read it correctly but just to underline it.
I WANT TO HELP YOU PAY MORE TAX.
On too many occasions to mention over the years I’ve been in a social environment with people I haven’t met before and the subject comes around to what we do for a living. I tell the people who have asked that I am an accountant and the responses fall within a few groups ranging from “but you don’t look like an accountant” (seems we can’t have tattoo’s) to “are you able to wangle me a bigger tax rebate” and a number of varieties in between.
In relation to the tax comments my standard response, and I would imagine will be familiar to many accountants outside of tax practice, is to tell them I’m not that kind of accountant. That got tedious after a while as I then had to go into more detail of the wide variety of roles in our profession. It was boring saying it, never mind hearing it. So, I looked for a response which may perk their ears up a bit and get them thinking.
My standard response to those who are business owners or senior managers these days is to tell them that no, I won’t reduce their tax bill as my focus in life is to get them to pay more.
Cue the tumbleweeds.
Most people simply don’t know how to react to that. We have had it ingrained into us that paying tax is a bad thing and that we have to pay as little as possible. Leaving the moral issues to one side, such as how we pay to educate our children if nobody paid tax, I go to it from a much more practical perspective. The more profit you make, the more likely you are to have a higher tax bill.
Good tax experts are absolutely worth their weight in gold in my opinion. Just because it wasn’t a field I wished to follow doesn’t mean that I don’t have a strong appreciation of their value. Their technical knowledge of legal methods to reduce your tax bill and subsequently leave more of your hard earned revenue in the business is vital. If you are a small business owner who isn’t utilising your tax accountant’s ability to assist you strategically manage your tax affairs you are quite simply missing a trick.
The problem is that they have a decidedly limiting factor as to how much they can save you. The profit you make. If your accountant is consistently saving you 10% of your tax bill each year but you are only making $10k profit then the saving is in the region of $300. The price of a good meal for two in some restaurants in Perth. What if your profit was $50K? Saving of around $1,700-$1,800. Starting to get better eh?
However, the majority of people only think of the tax they want to save but what happens to the rest of the profit? Correct, it is left in the business for reinvesting or payment of dividends. Let me give you an example to illustrate. All savings or benefits are after fees for ease of understanding.
Company A makes $100k profit per annum. At 30% their tax bill is $30k. Their accountant maximises their tax relief and saves them 10% so their tax bill is $27k, a saving of $3k. $73k is left in the business. Pretty decent result if you ask me.
The following year the same company employed Cariad to work with them to improve the efficiency and effectiveness of their operations and administrative functions which led to a $20k increase in profit before tax. We go back to the same tax accountant with a $120k profit. At 30% their tax bill is $36k. The same 10% saving applies so they save $3,600 and are left with a tax bill of $32.4k. Cariad has helped them increase their tax bill. However, the funds they have left for reinvestment or dividends has also increased to $87.6k, an additional $14.6k in the bank. I’m yet to meet a small business owner who would turn their nose up at an extra $14k-$15k.
So you see, maybe a bigger tax bill isn’t such a bad thing after all.