Plan, don’t react: keeping up with tax compliance in 2025

Welcome to our series of blogs on tax management for private businesses. Here, Grant Ashbrook and David Lindsay examine the events affecting tax compliance this year, and how to be ready for them.

Simplicity and UK tax legislation don’t go hand in hand. There’s a growing tax compliance burden on privately owned and PE portfolio companies as a result. Tax is becoming ever more difficult to manage – and the year ahead will be no different.

Internationally and domestically, a number of developments are set to transform the tax landscape during 2025. They may not all affect you, but you’ll need to understand their implications for your company, and start preparing for them now.

If your firm exports to the US, the unpredictability of US trade policy will be a concern.

Since returning to office, President Trump has imposed import tariffs on several countries – then immediately paused some of them. There are also threats to tax steel and aluminium imports from the UK at 25%.

It’s hard to know exactly how this will play out. But there are actions you should take regardless, so that you’re aware of the impact, and know how your industry peers are reacting. There are steps you can carry out immediately – for example, compiling First Sale for Exports documentation will reduce the customs duty you pay in the US.

There’s more certainty over other areas of international trade policy, like the EU’s Carbon Border Adjustment Mechanism (CBAM). This effectively taxes the emissions embedded in certain imports into the EU, throughout their value chain. You’ll need to evaluate the impact of such initiatives on your own supply chain (more on which below).

In 2017, President Trump’s first administration launched an overhaul of the federal tax code, in the form of the Tax Cuts and Jobs Act (TCJA).

Many of the Act’s provisions sunset at the end of 2025. Simply allowing them to expire would leave many people paying more tax.

The Government will presumably look to extend the TCJA’s cost-cutting effects, and fund them from elsewhere within the tax system. There’s speculation that payments from the US to foreign countries, or foreign firms’ US-derived income, might be targeted.

Again, uncertainty is the watchword. But if you’re planning investments in the US over the next year or two, think through the implications of such measures.

There is some potential good news on US tax reform. Potential changes put forward include lowering the corporate tax rate to 15% for companies manufacturing goods in the country.

If your business is in scope (broadly, if your group revenues exceed €750m), there are key compliance milestones this year relating to BEPS Pillar 2.

By the end of 2025, you must be ready to report your international tax position ahead of the first filings next year; and to take advantage of the transitional safe harbours. As such, your focus should be on getting your country-by-country reporting data in order.

It’s also worth considering the impact of Pillar 2 on how you communicate your tax position to the outside world.

Businesses are under increasing pressure to ‘pay their fair share’ in tax. To an extent, Pillar 2’s globally agreed 15% minimum tax rate sets the bar on what constitutes a fair share. It has the potential to make an ETR of 15% or higher palatable to many stakeholders.

Here in the UK, employment regulation is undergoing a seismic shift.

The Budget and Employment Rights Bill are ushering in changes to National Insurance Contributions, the National Minimum Wage, Statutory Sick Pay and more.

The effects on the cost of employment will be top of mind. But there’s also a host of new rules to follow. For instance, firms that have never had to deal with the National Minimum Wage are seeing staff come into scope.

Making sure you’re on top of employment tax and pay compliance is therefore more important than ever. Not least because the government is creating a new enforcement body, The Fair Work Agency, to oversee compliance.

At the same time, you’ll want to explore ways to offset rising employment costs. Greater use of salary sacrifice schemes, for example, can generate significant savings. A comprehensive review of your pay and benefits is advisable.

In summary: there’s a lot to take in, and some developments are yet to fully unfold. That said, there are steps you can take now to put your tax compliance in the best possible shape.

• Asses the impact on your business
  Model the potential impact of import tariffs on your supply chain; of tax reforms on your investment plans; and of rising employment taxes on your cost base. Identify the best and worst-case scenarios, and reassure your stakeholders that you’re planning for them.
  
  There are software solutions that will carry out the painstaking modelling work for you. But they’ll require data that’s stored outside the finance or tax function, so start the conversation now to identify simplifications, and low-cost tools, that could help.
   

• Clarify tax compliance responsibilities
  It’s easy for some elements of tax management to fall between cracks, as they don’t sit with the tax or finance department.
  
  HR will be making changes to your payroll in response to new employment rules, but may not be best placed to realise the tax compliance implications. And your supply chain team may be getting a handle on CBAM or changing US trade policy, but are they aware of the impact on VAT and transfer pricing?
  
  Making these lines of responsibility between functions crystal clear will reduce the risk of compliance failures, unpaid taxes and the associated penalties.
   

• Optimise your tax data management
  Initiatives like BEPS Pillar 2 and CBAM require your data to be gathered, organised and analysed in new ways.
  
  Your existing processes aren’t likely to be sufficient. Evolving them will mean first understanding your data and systems landscape. From there, you can identify the tools that will extract the right information, in the right way – ideally for multiple purposes at once.

It’s never been more important to consider your tax compliance position on a holistic and dynamic basis.

Compliance and data management are complex, technical exercises, particularly when they cross borders. You’ll need expert advice to stay compliant in an ever-changing landscape.

KPMG’s tax team supports private enterprises with all aspects of domestic and international tax – including core corporation tax and VAT compliance, BEPS, customs duties, transfer pricing and supply chain.

Please get in touch to arrange a call or meeting to discuss your tax compliance needs. Find out more about how we can strengthen your tax governance, manage your tax risks and unlock the value of your data.