Taxes affect businesses in a variety of ways, from influencing the particular legal structure of the business to where the business chooses to locate itself. Both ventral and devolved governments must carefully consider tax rates to find the "sweet spot" between securing adequate fees from the commerce created through business operation, and allowing a permissive enough climate for businesses to grow and thrive.
Impact on profits
Gains or profits are taxed at the national level. Taxation serves to lower the overall profits for a business, because a portion of the money earned is owed to the government. For example, if the tax rate on a company's profits is 30 per cent and the company earns £650 in profit, the company owes the government £195 in taxes. The rate of taxation may influence what a company charges for products and services if the business is looking to attain a certain level of profitability.
Business structure types
Taxes rates can impact how a business owner structures a business when it is created. Sole trader, partnership and limited liability company are the three basic UK business structures. The process to create a company is lengthy, and may be cost-prohibitive for the owner of a smaller business. Sole trader status costs nothing to create, but does not grant the liability protection of a company, and requires a business owner to claim all business profits as income.
Business location decisions
Tax rates vary from region to region and from county to county. Varying tax rates on the sale of goods and property taxes at the state and local levels can influence where businesses decide to situate themselves and build locations. If a region's tax rates are deemed unfavourable for business growth, it could lead to businesses deciding to move locations, including manufacturing plants, to another region, or even out of the country. This can create a large amount of job losses across the nation.
A business is required to pay taxes for unemployment, workers' compensation and payroll taxes when it chooses to take on workers to help with the daily running of the company. These tax rates can influence whether the business chooses to hire a certain number of employees, or if the company chooses to take on workers at all. If a business is particularly small, it may function just fine with the proprietor acting as the sole worker of the business. Any convenience created by hiring on a worker is outweighed by the taxes associated with the hire.