Tax avoidance: Tech, telly and Treasury tax tension

Tax avoidance: Tech, telly and Treasury tax tension

Ever since the start of the Industrial Revolution in 18th-century Britain, entrepreneurs and politicians alike have recognised that technology sells.

Across more than two centuries, from a mechanised textile industry to Twitter, innovation has transformed lives and swollen company bank balances.

Unsurprisingly, tax authorities in that time have sought to claim their share of the huge profits generated by the tech bonanza.

Perhaps equally unsurprisingly, those blessed with a creative spark and a gift for commerce have sought to retain as much of their cash as possible.

Therein lies the rub.

The ability of our digital age to transform start-ups into billion dollar corporations in what seems like the blink of an eye has arguably made governments desperate to grab some of the spoils.

Being frustrated by tax management strategies as inventive as the companies on whose behalf they’re employed has only left the likes of HMRC more determined to find an answer.

The £130 million coughed up by Google in 2016 after pressure from George Osborne was trumpeted as a sign that the world’s digital doyens wouldn’t be able to wriggle out of paying adequate taxes in the UK any more.

His successor as Chancellor of the Exchequer, Philip Hammond, has been keen to underline that he’s keeping the pressure up.

At the recent Conservative Party conference, he declared that Britain was leading the way in trying to rein in the “global internet giants”, pointing out that if efforts to introduce a digital services tax were hobbled by Brexit or a lack of international agreement, “the UK will go it alone”.

Was the news, only days later, that PayPal’s UK tax bill had increased by £2.7 million as a result of an HMRC investigation merely a coincidence or an intentional show of strength?

What, then, about Airbnb’s admission to Companies House on the very same day that it had also come in for some additional scrutiny from the taxman?

Certainly, the Chancellor is eager to flex his muscles. It’s not just the possibility of racking up some electoral brownie points and tax revenue by targeting cash-rich foreign enterprises which is a motivation.

All the sensible indications are that warnings about the danger to the UK’s financial health posed by a ‘hard’ Brexit  will place greater emphasis than usual on using tax from tech and other industries to fund his upcoming Budget.

One recent report made clear the value attached to extracting extra cash from the tech sector, suggesting that HMRC reckoned the industry was paying £2.5 billion less in tax than it should.

Informed commentators have also recommended paring back and eventually abolishing the amount of tax support given to established businesses to develop money-spinning products and systems.

Nevertheless, the potential withdrawal of valuable reliefs isn’t being meekly accepted.

The British Film Industry, for example, has hit back with a report detailing how the £632 million received by the “UK’s screen industries” (TV, film and video games) in 2016 fuelled more than £3 billion in spending on a range of productions and sales of nearly £8 billion – one-quarter of which ended up in the Treasury’s coffers as tax.

I can foresee other similar attempts to sway Mr Hammond’s thinking in the fortnight before he takes his place at the dispatch box and unveils his plans to shape the nation’s economy over the next 12 months.

What those efforts may rightly point out is that Britain shouldn’t simply be seen as rich pickings for foreign digital behemoths but home to some of the sector’s most innovative businesses too.

The Chancellor will need to strike a difficult balance between initiatives to ensure companies pay all taxes due and measures which risk choking that entrepreneurial spirit.

 

If you have any queries about the issue of tax avoidance or any tax matters at all then please get in touch.

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