UK could lose £10bn in VAT on digital services

by Calum Fuller

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04 Dec 2012

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THE UK WILL LOSE about £10bn in VAT due between 2008 and 2014 on digital services, according to research conducted by telecoms and digital consultancy firm, Greenwich Consulting.

The report identifies a £1.6bn in the county's collection structure for VAT, meaning consumers purchasing goods from suppliers outside the UK will have cost it approximately £10bn in lost revenue in the six years to 2014, according to the Guardian.

According to HM Revenue & Customs, in instances such as this, the fault does not lie with the supplier, which upon selling its goods or services will account for the VAT in its country.

An HMRC spokesman said: "It is a natural consequence of the VAT rules rather than any lack of compliance that a business in say, Germany, supplying such services to UK customers will account for VAT in Germany and not in the UK.

"Businesses have the freedom to establish themselves in whichever member state they wish. However, some UK businesses claimed to have moved their operations to other member states in order to benefit from lower VAT rates where in reality the supplies were still made from the UK. HMRC has successfully challenged such arrangements."

A report this week from the Public Accounts Committee on HMRC's accounts for 2011/12 called for a "change of mindset" at the Revenue, and told it to be tougher on multinational companies avoiding tax in the UK.

Large international companies including Amazon, Google and Starbucks had been at the centre of controversy over driving down their UK tax bills by diverting their profits offshore.

The taxman was "not taking sufficiently aggressive action to assess and collect the appropriate amount of corporation tax from these multinationals", the committee said.

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