Danny McCance 9 Oct 2018 10:07am

Potential tax from technology sector in the billions

HMRC estimates that the potential tax take from UK telecommunications and information businesses could be as much as £2.5bn

The estimate – which was disclosed to top 10 firm Moore Stephens following a freedom of information request – is labelled “tax under consideration” and is the “maximum potential additional tax liability” before an investigation has been carried out.

Moore Stephens tax partner Ken Almand thinks that HMRC has “put a target on the tech sector’s back”.

“HMRC has invested heavily in its compliance team to try and increase tax revenues, and tech companies have become one of its primary targets,” he said.

But he warned, “Increasing tax revenue from tech companies maybe the politically expedient option for the government, but if businesses do leave the UK, it will do long-term damage to the economy.”

A spokesperson for HMRC said the figure was inaccurate adding that “tax under consideration is not tax owed or unpaid, it’s an estimate of what might be at stake if we didn’t investigate”.

The spokesperson also said that the businesses included in the calculation were not simply tech companies but the largest businesses that came under the umbrella of “telecommunications and information technology”.

Moore Stephens also highlighted the recent government consultation on a new revenue tax for large technology companies and online businesses.

Last week, in his speech at the Conservative Party conference, chancellor Philip Hammond reaffirmed this idea, revealing that if global internet companies did not start contributing fairly to public services then he would consider imposing a digital services tax.

 In its most recent accounts submitted to Companies House, it was revealed that Facebook paid £15.8m in corporation tax in 2017, triple what it paid the previous year.

The social media giant came under fire in 2016 after it reported ending 2015 with a £11.3m tax credit, despite pledging to pay more taxes earlier in the year.

It increased its turnover in the UK by 50% to £1.27bn between 2016 and 2017, but despite this the profits reported in the same period only increased by 5.7%, from £58.5 to £62.767m.

Facebook billed £758m in cost of sales for the period and another £444m for administrative expenses.

Meanwhile, accounts filed with Companies House last month revealed that online payment company PayPal’s tax bill increased by €3.1m (£2.7m) to €5m for 2017, following an HMRC review.

The company paid £519,700 tax in 2016, while its profits for that year stood at €1.29m. It increased its profits by 512% to €7.9m in 2017.

A note on the accounts stated that HMRC had “been reviewing the company’s direct tax position”.

“As a consequence, the company has agreed to settle its outstanding liabilities and as a result is not subject to any current enquiries,” the note read.

Global accommodation booking service AirBnB has also recently become the subject of an investigation. In its accounts AirBnB revealed that it has been contacted by the Revenue in regards to tax laws.

“The company is also subject to tax inquiries and proceedings concerning its operations and intercompany transactions.

“Some of these matters may result in litigation,” the accounts stated.

“We do not comment on identifiable taxpayers,” an HMRC spokesperson said.

They added that the international tax system “needs to be rebalanced to be fair for all businesses” and that if it can’t get international engagement to do this, it “may have to look at temporary tax measures on digital businesses to rebalance the playing field”.