£2.5bn underpayment by UK tech sector, according to HMRC

The UK’s tech sector has been identified by HMRC as the latest to be evading tax payments this year, with an estimated total of a £2.5bn underpayment in 2018.

The technology industry is perhaps one of the fastest growing industries across the globe, a constant source of new ideas that has become intrinsically linked to business innovation. Understandably, then, it is a sector that has drawn the eye of the UK government and HMRC.

Moore Stephens has reported that the “complex international tax arrangements of multinational tech firms [have attracted] the attention of HMRC.”

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

This follows on from the growing media and political pressure that has been placed on HMRC to increase the total intake from tech sector companies. In particular, HMRC has accused the international tech companies of moving their profits to areas with different tax jurisdictions, thus reducing their UK tax liability.

The government has recently announced a consultation concerning how to secure new revenue through the taxation of larger online and tech businesses. Similarly, the EU and the OECD have introduced the idea of ‘tech taxes’, thus proving that this spotlighting of the technology sector is not just a focus of UK politics.

Moore Stephens stated: “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 is one of the fastest growing parts of the UK economy. The government should aim to ensure that any steps it takes does not discourage further tech investment into the UK.”

HMRC has had previous success when it comes to increasing their tax intake from large international businesses. For example, HMRC introduced Diverted Profit Tax in April 2015, a measure that was put in place to stop businesses from moving their profits away from the UK to avoid corporation tax.

Since the years 2012-13, HMRC has secured £6.5bn of additional tax through their challenging of pricing structures in businesses, including those in the tech sector.

Ken Almond, partner at Moore Stephens, concluded: “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 [mean] long-term damage to the economy.”

Current uncertainty still makes predictions of the stability in the economy for businesses following on from Brexit difficult to predict, but it can be concluded that HMRC controls remain a topic of debate.