Creating a tax savvy mindset

Whatever your politics, a country’s taxation is an emotive subject that is debated ad nauseam in both government buildings and in public bars and clubs around the globe.

Many companies operate under a predominantly bi-partisan system, which conveniently places each side either on the side of the (right leaning) low taxation system, or to the more left leaning high taxation system. Unfortunately, this black and white, all or nothing type approach masks the real complexity of how taxation policies can shape and influence the direction of an economy.

High vs low taxation

In general, the belief is that high tax rates can discourage work, savings, investments and innovation. The flip side of course that with higher revenue through increased taxes, a government has more budget that can be allocated on government spending projects, such as national infrastructure and healthcare. Managed effectively, this can have a positive impact on the economy.

Examining the other side of the coin, introducing tax cuts could release disposable income that encourages people to put more back into the economy through increased personal spending. The population may feel encouraged to work more and be more innovative, as the rewards are not immediately swallowed up by tax. This can help stimulate economic growth.

However there is some evidence that over a long period of time lower taxes will add to the overall national budget deficit.

The three cornerstones of a good tax system

The three cornerstones of a good tax system are considered to be simplicity, certainty and stability. In a world which has an everchanging platform of world leaders pushing their own agendas, and domestic political squabbles which are consistently point scoring, keeping astride those three cornerstones requires constant pivoting and rebalancing. Governments like to obfuscate by creating tax systems that are so complex that no one ever really knows what is going on, and the only certainty is that uncertainty keeps us all on our toes.

The only certainly about tax

There is only one guarantee when it comes to taxation – and that guarantee is that you are obliged to pay it if you are earning.

As an individual, keeping yourself informed as to your own personal tax situation is the only way you are going to be able to play governments at their own game, and ensure that you only pay the tax that you owe. By taking on the responsibility of keeping yourself informed, you are developing a ‘tax savvy mindset’ that will help carry you through the ever changing ta regimes that are often the undoing of those who cannot and do not keep up with changing legislation.

Enlisting the help of a tax expert who specialises in your professional sector could help you save literally thousands in unnecessary tax payments. For example, in the construction industry submitting CIS tax returns (Construction Industry Scheme) could save you as an individual on average £2500.

And never is it more important than now to keep on top of this. As governments scramble to find the means to pay for the coronavirus pandemic, support Ukraine in its struggle to maintain independence, and support its own populations cope with spiralling energy costs, tax systems are only going to get more obscure and invasive. We are going to increasingly see acts of ‘giving with one hand while taking with another’ and keeping on top of the changes will be a full time job.

Creating a tax savvy mindset

A good tax mindset will not see these changes as a reason to take the foot off the accelerator – rather, a good tax mindset will understand that what goes around comes around, and while we may be entering a period of high taxation, then trust in the system and reciprocity will ultimately reward those contributions and hard work.

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Also published on Medium.