Tech Sector Suspected of £2.5bn Underpayment

Complex international tax arrangements of multinational tech firms attract the attention of HMRC

HMRC is challenging businesses in the tech sector, targeting potential UK tax of £2.5bn in 2018.

The amount under review – known as ‘tax under consideration’ – is the suspected maximum potential additional tax liability before a full investigation has taken place.

HMRC has been under growing political and media pressure to increase its tax take from large tech companies, with these businesses being accused of using complex tax arrangements to reduce their UK tax liability by moving profits to a different tax jurisdiction.

In their search for increased revenue from tech companies, the government has announced a consultation over a new revenue tax for large tech and online businesses, while the EU and the OECD have also proposed their own ideas for so called ‘tech taxes’.

HMRC need to balance attempts to increase the tax take from tech companies against discouraging investment into the UK by being too aggressive. The UK has the largest tech sector in Europe and it is one of the fastest growing parts of the UK economy. Therefore the government should aim to ensure that any steps taken do not discourage further investment.

HMRC has already sought to increase their tax take from large international businesses, with the introduction of the Diverted Profit Tax in April 2015. This is designed to stop businesses from moving profits away from the UK so they are not subject to UK corporation tax.

It’s notable that HMRC’s more rigorous approach to tackling so called ‘transfer pricing’ has had some success. Since 2012/13, HMRC have raised £6.5bn of additional tax through challenging transfer pricing structures, including from tech businesses.

Ken Almand, transfer pricing partner at Moore Stephens, said: “It seems that HMRC has decided to put a target on the tech sector’s back. HMRC has invested heavily in their compliance team to try and increase tax revenues, and tech companies have become one of their primary targets.

“Increasing tax revenue from tech companies may be the politically expedient option for the Government, but if businesses do leave the UK,
it will do long-term damage to the economy.”