Spotlight on tax: how to turn obligation into opportunity

UK grocery businesses are feeling the burden of government-imposed taxation, particularly as environmental obligations ramp up. But discover from KPMG how companies can use tax strategically to influence growth, cost reduction and better decision-making.

From a box-ticking, back-office function, tax is now at the forefront of many commercial conversations in grocery and FMCG.

Driven by an increasingly complex and onerous tax landscape here in the UK, as well as the tumult of global tariffs, suppliers and retailers have been forced to pour significantly more resources and attention into their tax function in recent years. But despite being higher on the agenda, all too often tax is still regarded primarily as a cost or compliance lever, to be handled solely by the tax function, rather than a way to add value and build resilience.

That’s a missed opportunity, believes Tania Segovia Tornero, a partner and tax specialist at KPMG UK. “We’re in an environment where tax can be positioned as a strategic lever to fuel growth, deliver cost reductions, increase resilience, and ultimately protect a business’ reputation.”

So, how exactly can companies make this shift, flipping tax all the way from cost to a driver for growth?

Tania Segovia Tornero

Partner, Indirect Tax

KPMG in the UK

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Linda Ellett

Head of Consumer, Retail & Leisure

KPMG in the UK

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Tax can be positioned as a strategic lever to fuel growth, deliver cost reductions, increase resilience and, ultimately protect a business’ reputation.

Tania Segovia Tornero

Partner and Tax Specialist

KPMG UK

Reframing tax as a strategic lever

As retailers and suppliers continue to grapple with a challenging trading landscape – one forcing tough trade-offs involving price, product and customer experience – tax has for too long remained an overlooked, underutilised tool.

On the one hand, the domestic and international tax landscape remains in a period of flux and uncertainty, creating plenty of its own challenges.

“Successive governments and chancellors have continually added to the business tax burden,” says Ian Wright, former chief executive of the FDF and now a partner at Acuti Associates. “The wave of environmental taxes designed to incentivise moves to net zero, as well as Trump tariffs, are just the latest examples of decades-long larceny perpetrated on the private sector.”

That pace of change and level of complexity isn’t letting up anytime soon either, flags Tom Holder, spokesperson for the BRC. “Even now, retailers will be working out what their business rate liabilities are [for example], many of them calculating the full extent of that with the cross between revaluation, certain reliefs and changing multipliers for different-size stores – all of which makes it a very complicated calculation,” he says. They’re simultaneously grappling with “three overlapping plastic packaging taxes” in the form of Extended Producer Responsibility (EPR), Packaging Recovery Notes and the UK Plastic Packaging Tax. “The amount of compliance required seems to be going up and up,” he adds.

But leveraged in the right way, the role of tax goes far beyond cost, compliance and complex administration. In fact, for Segovia Tornero, the differentiator for teams managing these demanding tax regimes is to switch how they think and talk about tax: from a complex compliance exercise to a value-add for the business as a whole, with the potential to drive better decision-making and optimise cost reduction.

Business-wide wins

Taking a proactive stance on tax can unlock wide-reaching wins that span supply chain, innovation and even brand reputation.

For example, better utilising insights from tax can help manage cashflow, releasing “trapped cash” in the supply chain, explains Segovia Tornero. “When a business pays VAT on imported goods, it should ensure that appropriate preparation is in place to accelerate VAT refunds so the cash is with the business sooner,” she says. “Releasing this working capital will reduce borrowing needs and give companies stronger liquidity – particularly important for seasonal product portfolios.”

Eye-watering sums still go unclaimed in innovation credits and VAT refunds because businesses judge it’s not worth the effort to collect.

Ian Wright

Partner at Acuti Associates and former chief executive of the FDF

By getting tax teams involved earlier in conversations around R&D, too, whether relating to product formulations or technology innovation, companies can take advantage of certain government backed schemes designed to offer tax breaks. That includes the R&D Tax Relief scheme here in the UK, which allows companies to either reduce corporation tax liability or receive a cash payment – money that can then be reinvested into further innovation or other growth initiatives.

As Wright points out: “Eye-watering sums still go unclaimed in innovation credits and VAT refunds because businesses judge it’s not worth the effort to collect. It is, and there is similar potential in planning around tariffs.”

The same goes for environmental taxes, such as EPR. “Bringing your tax team in early around environmental taxes when thinking about things like product development and sourcing can help to future-proof and reduce your tax bill in the longer term, as well as aligning to your broader ESG strategy,” says Segovia Tornero. Such a move doesn’t only ensure compliance, but can build brand equity and reputation, with consumers positively moving toward companies with a better track record on transparency.

“There is real value in businesses that consider tax as part of wider commercial strategy,” agrees SME advisor and founder of Know Your Business, Jason Tassie. “The margins of retailers and suppliers are under constant pressure from forces such as inflation and supply chain disruption, so even relatively small improvements in efficiency can have a meaningful impact.”

No regret fundamentals

The key to repositioning tax as a strategic lever in all these areas is to lay the foundations of a tax function that is robust, adaptable and, crucially, a shared endeavour, says Segovia Tornero.

Data quality is one of the key “no regret” actions that can contribute to this foundation, she adds. “Tax is the biggest consumer of data in an organisation, so it’s important to make sure the data is granular, adequate and complete.” Such a step doesn’t only ensure compliance but helps inform decision-making all the way up to board-level, equipping leadership with more accurate and comprehensive insights. Embracing technology and AI as a tool to automate compliance and speed up core processes is another important step. In so doing, tax teams are freed up to the use their energy and focus on the more value-add aspects of the function, such as forging partnerships across the rest of the business, adds Segovia Tornero.

Third, and most critical, ensure that tax is a part of decision-making at the earliest opportunity, rather than an afterthought. This shift is already underway. For example, “after the US imposed tariffs on UK imports last year, we have never seen tax and customs being part of so many C-suite conversations,” she says.

The bottom line is that “tax impacts major business decisions,” sums up Tassie. “When leadership teams understand that connection earlier in the decision-making process then a business can plan more effectively.”

In doing so they can improve clarity, optimise plans and benefit from sizeable cost savings – all of which can cement tax as the core commercial lever it is.