UK Taxation of the Unilever Company

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Requirement

Your first assessment requires you to write a formal report. For this formal report you are required to assUm0:
1.    Your role (e.g advisor, Tax consultant, Tax Manager etc)
2.    Your company (you may choose the company you are working on)
3.    The profile of the company (you may summarise the information that are publicly available)
4.    The current state of the company (you may assume the figures, it is not required to obtain actual/real tacts)

By the time you start writing on your first assessment you would have s1udied some basic taxation rules for both individual and company. Your role will indicate the type of report you will be writing to your choice of company. The main purpose of this assessment is to apply your knowledge to a practical situation. As you know, the tax law changes every year. This places tremendous pressure on tax consultants as they need to keep up to date with the changes and provide constructive proposals to their clients. Perhaps that is why tax specialists are very expensivel
For this assessment you will be given an article taken from Tax magazine. The article is quite comprehensive with illustrated examples that explain the changes in one particular aspect of the tax rule. Further readings on the articles or comments can be found from the online version of the Tax magazine (URL normally given at the end of the article)

Your tasks are as follows:
1.    Provide a report outlining how the change introduced will affect your chosen company
2.    Illustrate your analysis with calculations where required
3.    Draft an action plan for the future of the company on the factors that will lead to overall benefit to the company
4.    Provide consideration of professional ethics to your action plan
5.    Outline strength and weaknesses of your report

Solution

Introduction

The assignment is about the application of knowledge regarding tax to a practical situation. It requires us to assume our role, choose a company on which we are working, the explanation of the profile of the company and the current state of the company on which we are working. It is not necessary to take the actual figures about the company but we can assume the figures to explain an illustration.
Moreover, the assignment requires us to show and explain how the changes made would affect the company chosen. Another part requires us to analyse the situation with the help of illustrations. It requires us to draft an action plan for the future of the company that would benefit the company overall. The consideration of professional ethics to the action plan needs to be outlined. Finally, the report requires us to outline the strength and weaknesses of the report or any additional information that we could include in the report to make it more useful and to complete the analysis successfully.
To execute the assignment, the role assumed here is the role tax consultant. The company chosen to work upon is Unilever. The profile and background of the company is detailed below.

About the Company

The company chosen by me here is Unilever. Unilever is the largest and strongest company of the United Kingdom. The company operates in a consumer goods industry. The company was founded 86 years ago. The headquarters of the company is also in United Kingdom. Unilever offers products such as foods, beverages, cleaning agents and personal care products. The company owns over more than 400 brands and its operations are carried out worldwide. Some of the top brands of the company are WALL’S, Dove, Vaseline, Cornetto, POND’S, TRESemme. 
Unilever started in 1885. Firstly, Williams and James Lever launched a laundry soap which was world’s first branded laundry soap. Unilever has sites of manufacturing and distribution depots at UK. Unilever’s sale in UK is around 2 billion Euros every year. (ANON, N.D.).

Tax Rule Change

The important part of the article is about the tax avoidance. Tax avoidance is legal. Tax avoidance is making use of the tax laws and reducing the tax liability. Tax avoidance is simply avoiding tax legally. Most of the organisations make use of tax avoidance to reduce their tax liability legally. But, there are many regulations issued which relate to the concept of tax avoidance. Although tax avoidance is considered legal, but there are some tax-laws that need to considered while planning about the tax avoidance. 
Moreover, the article given considers the document that is created by members of the tax profession for their members which is the Professional Conduct in Relation to Taxation. The document is divided into three parts. First part of PCRT is the fundamental principles that are integrity, objectivity, professional competence and due care, confidentiality and professional behaviour that should be followed by the tax consultants. The second part of PCRT is about tax returns and tax advice. The third part of the PCRT is detailed guidance to deal with some specific circumstances listed. (Mandy Pearson, Sharon Baynham, October. 2015.)
The change in tax rule affects each and every organisation of the country to which the regulations apply. The article discusses about the debate over tax avoidance. It states that there have been imposed new regulations on the tax advice by tax consultants. Some of the examples given in the article about the new regulations are GAAR (General Anti-Abuse Rule), disclosure of tax avoidance schemes and the promoters of tax avoidance schemes regime. 
The aim of including the above discussed regulations on to business is to keep a check on what the taxpayers’ do. Another objective is to assure that the profession of tax consultants do not bring any reputational damage to themselves as an individual or to the client or to the profession as a whole. 
Another important point discussed in the article is about the fundamental principles that the tax consultant should undertake while advising his client. Tax consultants play a great role in an organisation. They have to keep themselves updated with each and every change in the tax laws in order to help their client in the best possible way. 
The important and main new regulation is GAAR. Another important and widening scope of new regulation is disclosing tax avoidance schemes and the promoters of tax avoidance schemes. The latest addition of the PCRT is published in May 2015. The new regulations related to tax avoidance are on ongoing development. The document mainly focuses on the changes made in the taxation laws and how tax consultants should tackle different situations. 
One small change in the tax rule may affect the industries or organisations widely because if that change relates to the operations of the organisation, the organisation would have to consider it and they will have to include that change in their tax planning. Tax consultants have to consider the change in tax rule efficiently. For example, there are regulations related to General Anti Abuse Rule. 
The document is importantly issued in order to prevent the risk of tax avoidance. It has been issued to build up the strategy introduced by the HMRC regarding anti-avoidance strategy. It will also help the HMRC to deal with abusive tax avoidance. The GAAR regulations discussed are important for the company chosen to in case they apply to the organisation. Let’s discuss about the taxes to which GAAR apply. 

• 1.    Income Tax

• 2.    Corporation Tax

• 3.    Capital Gains Tax

• 4.    Inheritance Tax

• 5.    Petroleum Revenue Tax

• 6.    Stamp Duty Land Tax

• 7.    Annual Tax on Enveloped Dwellings

GAAR applies to most of the taxes. Income tax is a tax to be paid on the income earned. Hence, it applies to all of the taxpayers who can be individuals as well as companies. Hence, the new tax regulations apply to the Unilever also. The last update of GAAR was made in January 2014. (HMRC, January.2015.)
GAAR can be considered as very much important to the tax consultants as it covers the situations which the tax payer need to keep in mind before involving into the practise of tax avoidance.

Analysis

GAAR considers the reasonableness and aim and facts of the transaction and concludes whether the transaction entered into by the company can be covered under the GAAR regulations or not. If in case GAAR concludes that the transaction entered is interpreted by the taxpayer wrongly and it should be interpreted another way, GAAR would consider and interpret the transaction that way and the tax consequences of the transaction would defer compared to the tax consequences made before by the tax payer.

Example 1

According to the Capital Allowance Act 2001, section 437 to section 451 of the act permits 100% allowance to those who incur capital expenditure on research and development activities.
If we assume that Unilever conducted research and development activity on a new product and incurred capital expenditure of let’s assume 2,00,000. Now, according to the act, Unilever would claim the deduction of the whole of the capital expenditure incurred by them i.e. 200,000. 
As GAAR regulation is there in tax laws, the facts and the reasonableness of the transaction would be considered according to the GAAR norms and the conclusion would be made as per GAAR norms. If the authorities feel that the transaction is abusive according to the rules and only part of the expenditure qualify for deduction, only that part of the capital expenditure would be allowed as deduction. (HMRC, N.D.)

Example 2

Another example is about the sale o land and building to another person and planning the transaction in a way that the disposal of the transactions fall within a particular date to enjoy the benefit of lower capital gains tax. 
Let’s assume that government announced that the rate of tax on chargeable capital gains would be reduced from 6th April, 2016. 
Unilever confirmed with the purchaser about disposing of the land and building by the completion date of 1st January, 2016. Unilever with the help of tax consultant again negotiated with the purchaser to dispose of the land and building after 6th April to have the advantage of lower capital gains tax. The land and building were given to the purchaser for exclusive use from 1st January, 2016 and rent-free. Then after, the sale was completed on 10th May which resulted in huge amount of capital gains and the disposal takes place after 6th April 2016. 
According to Unilever, the transaction would be liable to reduced rate of tax and capital gains would be charged accordingly.
The GAAR would analyse the situation and reasonableness of the transaction and reconsider it. According to GAAR analysis, the results of the transaction are in line with the provision of the act. The disposal was delayed to a later date to have the benefit of lower rate of capital gain. Moreover, the arrangement made was not even with a view to exploit any shortcomings of the act and the gain made was charged to the tax rate which was in force at the time. The arrangement dose not even indicates any abusiveness within section 207(4) of the FA 2013. 
Hence, according to the analysis of GAAR, the transaction is not abusive and it does not need to be considered by the HMRC. (HMRC, N.D.)

Example 3

The regulations related to showing the tax avoidance strategies although are not into the tax laws but are on ongoing developments. Now, suppose if there are new regulations related to showing the tax avoidance schemes used by the organisations, then every organisation would be obliged to show the strategies used by them to avoid the tax liability.
Unilever may use the benefit of deductions available to it and plan to avoid the tax liability according to the provisions of law. General examples of the deductions to companies are expenses related to the operations of the companies and depreciation and amortisation. Moreover, employee share schemes are deductible expenses according to UK tax law. If the company plans and issue employee share schemes to have the benefit of deduction, the company would have to show the strategy to the HMRC.

Action Plan

The action plan of the company for future to benefit the organisation overall could be as follows.
The tax consultants of the organisation should go through the document of GAAR. The document is divided into five parts that are part A, B, C, D and E. Part A explains about the purpose and the status of the guidance. Part B is about how would GAAR work and operate. Part C is specific points that need to be considered. Part D gives few examples about how the GAAR would operate and consider the transaction abusive. Part E of the document is GAAR procedures. Another important document for the benefit of the organisation to be referred by the tax consultants could be PCRT. The schemes for avoiding the tax liability should be planned in a way that it is considered as abusive and best help the organisation in reducing the liability. 
The deductions available to the organisations should be taken advantage of. It should be planned in a way that fines and penalties are not attracted. The expenses which are not allowed to be deducted while computing the tax liability should be taken care of. The expenses incurred wholly and exclusively for the purpose of conducting the operations of the company are allowed to be deducted. The TDS liability should be deducted on time and returns related to the taxes should be filed on time so that fines or penalties are not attracted. (PWC, N.D.)
This way, the tax planning can be made by the tax consultant that can help the organisation in a best way to reduce the liability legally. 

Ethical Issues

Ethics is an issue that can emerge in any field of any industry. Ethics is the standard of behaviour by a person in different situations. The actions of a person in different situations define the behaviour ethical. Ethics is the moral values of the person acting towards the society. Tax is paid to the government for the benefit of the society and for all those equipments of the society that we use. Paying tax to government is ultimately helping the society for a good cause. 
Tax avoidance is not illegal but a question can be raised here whether it is good for the society? Is it ethical to avoid tax for the benefit of the organisation on a cost of the society? Well, fairly avoiding tax can never considered to be ethical if looked from the view point of the society. However, still if it is not ethical it is committed by most of the organisations to pay reduced tax liability. The right of tax avoidance is given to the organisations by the statute but still the use of the right can’t be considered as legal from the ethical point of view.
Well, there is an alternative available to this biggest ethical problem of most of the organisations. If in case, companies plan their tax avoidance strategies and pay reduced tax liabilities, they can still do well to the society by appropriately following the provisions of corporate social responsibility. Apart from the legal obligations of the corporate social responsibility, they can contribute to the development of the society. Organisations can act to reduce the pollution related issues around the manufacturing sites of the company. Moreover, organisations can help their employees to live better life and help their families with medical and education related issues. Organisations can contribute to the genuine charitable institutes as much as possible so that the benefit of deductions can also be taken and it would also benefit the society. (IBE, April.2013.)

Conclusion

Changes in tax law may affect the organisation deeply as it needs to update every time the changes are made. GAAR is the main change adopted and there are chances to include the disclosure of the tax avoidance strategies to the HMRC. The GAAR and PCRT are the two important documents to be considered by the tax consultants to execute their duties well. Apart from designing the best tax avoidance strategies, the ethical issues should also be kept in mind so that the organisation do not benefit at a cost of the society and the social responsibility of the organisation is also taken care of.

References

• HMRC, January, 2015, “Tax Avoidance-General Anti-Abuse Rule”, Accessed on 5th January, 2016,

• HMRC, N.D., “(HMRC) (GAAR) Guidance”, Accessed on 5th January, 2016,  

• HMRC, N.D., “(HMRC) (GAAR) Guidance”, Accessed on 5th January, 2016,  

• HMRC, N.D., “(HMRC) (GAAR) Guidance”, Accessed on 5th January, 2016,  

• ICAEW, May, 2015, “Technical Release (PCRT)”, Accessed on 5th January, 2016,  

• ANON, January, 2016, “UK Tax Laws and Tax Systems”, Accessed on 5th January, 2016,  

• IBE, April, 2013, “Business Ethics Briefing”, Accessed on 5th January, 2016,  

• PWC, N.D., “UK-Corporate Deductions”, Accessed on 5th January, 2016,  

• ANON, N.D., “Unilever in the UK”, Accessed on 5th January, 2016,