What does "tax transparency" mean?

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Everybody loves to talk about tax transparency. But what does tax transparency mean? Is it very important, or how does it work?

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Tax transparency means different things for different types of business structures, but it essentially refers to the way an organisation clarifies the taxation of its profits and the amount of tax it actually pays.

Limited companies are less tax transparent than LLPs. A company pays 20% Corporation Tax on all taxable income before it is distributed to shareholders, but there are a number of ways that company directors can significantly reduce their personal tax obligations. Namely, by taking a small salary and supplementing it with dividends. On the flip side, directors can end dealing with double taxation if their dividend income takes them into a higher tax band.

LLPs are different. They are tax transparent because the LLP members simply pay Income Tax on their individual share of the partnership’s taxable profits. The business itself does not pay Corporation Tax so there is no risk of double taxation.

a year ago
 

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