Questions:
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.
Cadbury is a London based confectionery company which is wholly owned by American company called Mondelez International which was earlier known as Kraft foods. It is named as the second largest confectionery brand of the world after Wrisley’s. it operates in more than 50 countries worldwide. The most famous products of Cadbury are dairy milk chocolate, the crème egg and also the rose’s selection box along with various other confectionery products. It is one of the best known British brands, in the year 2013 The Telegraph named Cadbury among Britain’s most successful exports. Cadbury was established in England in 1824 by john Cadbury who used to sell tea, coffee and drinking chocolate. It was granted the first royal warrant from Queen Victoria in 1854. It has also been a holder of a Royal Warrant from Elizabeth II since the year 1955. The dairy milk chocolate which was introduced in 1905 used a higher proportion of milk in the recipe as compared to that of the products of the rival groups. By the year 1914, it was the company’s best selling product. Cadbury was one of the three biggest British confectionery manufacturers in the nineteenth and the twentieth century’s. It now is a subsidiary of Mondelez International which was earlier known as Kraft Foods Inc.
The company is a United Kingdom based company and so is governed by the United Kingdom laws. Since the company has been expanding its business regularly, its major expansion plans will highly be affected by the higher taxes to be paid. The company as per the income taxation rules of the United Kingdom is required to pay a flat tax rate of 20% on its net income. The company is a resident of United Kingdom as per the basis rules of the Income Tax Act of United Kingdom. Since the company is incorporated in United Kingdom, has its place of business in United Kingdom, the management and control is in United Kingdom, the decision making authority is the United Kingdom residents i.e. the decision making body consists of shareholders who are residents of United Kingdom, thus the company is a resident of United Kingdom (Christian, 2013).
The rate of corporation taxation for the financial year 2014 was 20% which was same as that of the last year. Corporation tax is the tax which is levied in United Kingdom on the profits earned by the companies and also the profits earned by the permanent establishments of the non – UK resident companies and associations. Corporation tax is the fourth largest source of government revenue for the United Kingdom. Before the introduction of tax’s enactment, both the companies and the individuals had to pay the same rate of tax. There exists slab rate for corporations also. For the year 2014 the tax rate for incomes above £300,000 has been reduced to 21 % from that of 23% from the year 2013. Also for the year 2015 this rate of tax shall be reduced to 20%. If the profits are £300,000 or less then the companies shall be liable to pay a flat rate of 20% in all the cases. If the company had profits between £300,000 and £1.5 million before 1 April 2015, then it may be able to claim Marginal Relief to reduce its Corporation Tax. If the company earns an average of 10% net profit before tax then:
|
Particulars |
Financial Year 2014 |
Financial Year 2013 |
|
Turnover (a) |
$ 34,244 million |
$ 35,299 million |
|
Net Profit in %(b) |
10% |
10% |
|
Net Profit c = ( a * b ) |
$ 3,424million |
$ 3,529 million |
|
Tax rate (d) |
20% |
20% |
|
Tax ( c * d ) |
$ 684 million |
$ 704 million |
From a perusal of the above, this can easily be identified that though the company has decreased its turnover and keeping the margin of its sales as before, but the company is being able to generate more of the cash in hand. Apparently, it can be understood that the company will have $ 105 million (3529-3524) of the cash shortage in its hand which can now not be used for capitalization purpose. If the company uses the same amount for capitalization, it will not have to take loan of this amount from the market; hence the interest on loan will not be required to be paid. The savings in interest on loan will be helpful for generating more income of the company. The Government is planning to reduce interest rates in the coming financial years which will have lesser tax burden on the company. The only tax which is imposed on the company other than the income tax is GST i.e. Goods and Service tax. Since, the company is selling products that are perishable in nature; the consumers of these goods are required to pay Goods and service tax on the product purchased from therein (Sadiq et. al, 2014). But the Government of United Kingdom, however has even lower the income tax burden of the individuals also which would result in more of the cash in hand of the individuals and they would be able spend much than before (Moffett et. al, 2011).
Since the demand for chocolates and other similar products are never going to decline, the company should take effort in putting in more innovative ideas so that, new products can be launched in the market according to customer needs. Cadbury has become a brand and in order to maintain its image, it needs to continue its dedicated work towards its customers. Also it can make use of various incentives provided by the government from time to time. The company in order to expand its business may also start selling these products which would increase its turnover and would help in the growth of the business (Sadiq et. al, 2014). Since managing taxation rules on United Kingdom basis would be a difficult task for the accounts of the company to handle, it should employ more professionals to make it more organized one (Christian, 2008).
The company has seen its increasing trend in terms of outlets, delivery service, and customer satisfaction. Customer satisfaction is the major reason behind any fast food retail chain outlets to expand. The company has been delivering exceptional client service in terms of providing the best quality chocolates and at the reasonable price which can be easily afforded by any customer which belongs to all sections of the society. Chocolates are such food item which is loved by all. Whether it is a small kid or a school or a college going student or it is family person or an aged person, the demand for the same if the quality is kept intact matching with the price of the product, the demand for the same is never going to fall (Christian, 2008). If the company goes wrong in providing the quality of the food it is serving to its customers, the brand name of the company would hardly require a minute to fall and the business of the company can be closed down immediately.
The company should also be regular in depositing the taxes on time. The last day of payment of corporation tax is normally 9 months and 1 day after the end of the accounting period of the company, for example, if the financial year of a company ends on 31st December 2014, then the last day of payment of tax shall be 1st October 2015. If a company fails in depositing the right amount of taxes on time it may lead to penalty and prosecution. The company may have to face various kinds of litigations due to non – payment of income taxes on time. The directors of the company and the officers of the company will then have to be answerable to its shareholders providing them the reasons for which the taxes were not paid and the company had to face litigations (Pratt & Kulsrud, 2013). Since the company has an annual turnover of more than $ 20 million, the company would require filing a monthly business activity statement (Saunders, 2015). The company would be required to deposit the Goods and Service tax collected from its customers after adjusting the credits (credits would be the amount the company has paid as goods and service tax while purchasing the goods and services for the delivery of the goods it has made for its customers) on a monthly basis in the account of the Government by 21st day of the following month for which the Business activity statement has been submitted by the company (Nethercott et. al, 2013).
For example: if the company submits the business activity statement for the month of March 2016, the company would be required to deposit the net of Goods and service tax to the account of government by 21st day of the following month that is to say 21st of April, 2016. Net of goods and service tax means the goods and service tax collected by the consumers of the product reduced by the amount of goods and service taxes the company has paid while purchasing the products for delivering the final product (Saunders, 2015). The company gets a benefit herein. The company is not required to again pay the amount of goods and service tax it has already paid before. Hence, double taxation is thus avoided. However, these two dates from a taxation perspective is highly important from a company point of view: 30th June of a financial year which is the last date for depositing the income tax of the company and 21st Day of each month which is the last date for depositing the net amount of goods and service tax of the company. The company needs to file its income tax return by 31st of October after the end of the fiscal year (Moffett et. al, 2011). That is to say if the fiscal year of the company is 1st of July, 2015 to 30th of June, 2016, it will have to submit its income tax return by 31st of October, 2016.
Since the company has outlets of more than 160 stores, it must ensure timely consolidation of the accounts, so that the correct figure could be arrived. There should be online systems of accounts through which on a daily basis the store wise entries could be done. Entries done on a regular basis would ensure proper and accurate computation of taxes (UK Corporate Tax, 2013). One more benefit the company is enjoying in terms of accounting and taxation is that since it is in the business of perishable products, there would be no chances of goods once sold returning back by the customers. So no back dated entries would fall in the system and thus would help in timely consolidation of data by the company (Bair, 2005). The company must also ensure that the entries on the last day of the fiscal year must get updated on an hourly basis and by anticipating a particular amount of sales for that day, the income tax should be deposited within the close of the day on 30th June of each fiscal year. Further, the company must be hiring highly qualified professionals to deal with all these taxation matters so that there are no chances of any due dates getting missed (Nethercott et. al, 2013).
All the important dates which are important from taxation point of view has been covered. The impact of expansion plans of the company from taxation point of view has also been covered along with the figures as examples. This clearly indicates that the company has strived to produce better result through the compliance mechanism (Nethercott et. al, 2013). The tax consultant has played a vital role in shaping the tax structure of the company. However, the important forms which are required to be submitted could have also been brief so that the company could have a comfort in it. This updation can be done by the company so that it fetches a better result and help the company in better course of activity.
Conclusion
However, the Government is proposing to change the Goods and service tax rate to 15% from 10% which would mean the cost of a processing of chocolates going up by 5% on the amount which is now. That may not have a bad impact on the sales of the company as all the competitors would also require raising the price of the product. The company at present is keeping a margin of 30% on the turnover of the product, it may think of making a hike in the margin, but at the same time it must ensure that the manner in which it has maintained its quality right now, it must maintain its standards (Forbes, 2005). Thereby it is imperative that the tax consultant must adhere to the rules and responsibilities and helps in providing stability to the company. Overall, the entire mechanism stress upon the concept of compliance.
References
Bair, J 2005, ‘Global Capitalism and Commodity Chains: Looking Back, Going Forward. Competition and Change’, vol.9, no. 2, pp. 153-180
Bryman, A 2001, Social Research Methods, Oxford: OUP Oxford
Christian, A 2008, Death and taxes: The true toll of tax dodging, Oxford Press.
Christian, A 2013, Who pays the price? Hunger: the hidden cost of tax injustice, Mosby-Year Book.
Forbes, S 2005, Flat Tax Revolution, Regnery Publishing.
Moffett, M. Stonehill, A. and Eiteman, D 2011, Fundamentals of Multinational Finance, Oxford Press
Pratt, J.W & Kulsrud, W. N 2013, Federal Taxation, Oxford university press.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan,S., Krever, R.,Obst, W.,& Ting, A 2014, Principles of Taxation Law, Sydney.
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