HMRC is well known for being determined, unforgiving and at times, ruthless in regards to chasing down tax evasion in the UK. Recent government data showed that the tax gap was an estimated £36 billion of theoretical tax liabilities. Yet, the treatment and ferociousness of the HMRC seems to differ between SMEs and larger corporate businesses.
What is the “tax gap”?
This “tax gap” – meaning how much HMRC collected versus what it believes it should’ve collected – is about £18.3 billion from SMEs alone. Surprisingly however, large business contributed just £9.5 billion to the overall figure. So, why is it that the focus of tax collection is so set on SMEs and not major global businesses currently operating in the UK?
With this in mind, we decided to take a look at 5 of the biggest businesses that HMRC has provided favorable tax relief against.
Google Tax Relief
At an enormous $530 billion dollar valuation, 70 offices in 40 countries and one of the world’s largest advertisers, Google is the most commonly referenced company that HMRC has provided tax relief to.
In 2016, HMRC judged that Google’s tax arrangements were legal and therefore the internet giant did not need to pay any further than the £130m in additional tax for the last 10 years. At an equivalent of 3% tax rate, the San Francisco based colossus has been allowed to escape paying hundreds of millions in tax to HMRC despite employing 2,300 staff in the UK alone (and an additional 2,200 are expected to join with the launch of their new £650m offices in Kings Cross).
The search engine giant makes over 90% of its profit from selling advertising on its online platform. However, sales are generated via their Ireland office that allow them in turn to avoid paying standard Corporation Tax rates. UK operations are intentionally organised so the UK company makes as little profit as possible to avoid taxation.
It will come as no surprise that Google boss, Eric Schmidt, not only had multiple meetings with members of David Cameron’s former cabinet but is also a member of the former Prime Ministers Business Advisory Group.
Apple Tax Relief
If Google weren’t a big enough company to satisfy accusations of foul-play, then Apple will be. At an estimated valuation of $605 billion, Apple had a revenue stream of $215 billion in 2016. Through soaring sales of smartphones, tablet devices, laptops and desktop computers, the revolutionary technology firm have seen profits soar in the last two decades.
However, UK experts estimate that Apple are paying a fraction of the profits to the UK taxpayer via tax avoidance schemes. In 2015, Apple paid a paltry £12.9m in Corporation Tax despite posting huge global profits in excess of billions of dollars.
Again, the structuring of the electronics giant through their Irish office allowed them to minimise profits in the UK but continue to take advantage of the UK’s economy, employment resource, infrastructure and marketplace.
Amazon Tax Relief
Online e-commerce platform Amazon is reported to have generated £5.3 billion in UK sales in 2015. The website has long been one of the world’s most advanced and popular online marketplaces. It deals with single sole traders selling bits and bobs through to major global fashion brands looking to sell on their website. However, in 2015, Amazon paid even less to HMRC than Apple with an estimated £11.9m in Corporation Tax.
Yet again, HMRC seemed content that funnelling sales through their Luxembourg office was an ethical tax arrangement. The internet giant employs over 8,000 people in the UK alone and nearly 10% of all global sales are from the UK.
Shell Tax Relief
Whilst there can be no doubt that the online & technology industry giants are serious offenders with their tax arrangements and regularly avoiding HMRC punishments, the petroleum industry is in a completely different ballpark altogether. A 2014 Sunday Times investigation showed that the oil giant Shell paid zero corporation tax despite a global profit of $20 billion in 2014.
Shell are 5th largest company in the world and in the UK alone boast well over 6,000 staff. Shell argued that despite global profits their UK operations suffered a loss so they therefore did not need to pay any corporation tax. However, it is clear to everyone (but the HMRC) that tax arrangements used offshore transactions to help them gain an advantage in avoiding tax legislation.
IKEA Tax Relief
The final example of a corporate giant avoiding tax without consequence from HMRC has to be Swedish furniture brand IKEA. With an estimated network of $43.2 billion for IKEA’s founder – Ingvar Kamprad – alone, IKEA have been avoiding tax for nearly half a century.
European parliament research showed that IKEA “structured itself to dodge €1bn in taxes over the last six years using onshore European tax havens”. IKEA differ from many of the other giants in that some of their tax arrangement are even more complex.
One tactic in particular involves gaining not-for-profit status globally. Whilst, the Swedish company’s PR points towards it’s charitable status as corporate social responsibility, recent investigation by The Economist shows that the charitable wing of the organisation accrued around €33.5 billion in funds over a decade ago, with this number likely to have increased since then.
How do these firms get away with it?
Unfortunately, the repercussions for SMEs are substantially more severe than for large corporate tax-dodgers. HMRC has shown on multiple occasions a favourable outcome to larger businesses whilst still continue to pressurise and punish SMEs for even the slightest error or minor tax arrangement.
Whilst HMRC and the government have boasted “victories” such as the 2016 Google tax case (that saw Google pay back £130m in unpaid tax), the figures provided are still a nominal rate of tax in comparison to the profits of the business. This is particularly concerning for not just SME’s (who we’ve shown to still be targeted for filling the “tax gap”) but also the tax-payer.
Multi-national companies like Google, Shell and IKEA are employers to thousands of UK residents and rely on the nation’s infrastructure (roads, land, energy, workforce) to make their profits. Yet, their contribution is substantially less than what they take.
SMEs are unable to challenge HMRC rulings against them in comparison to larger businesses. They lack the accountancy teams to manage finances and have less resource and time to spend battling tax investigations.
As HMRC makes further demands and adjustments to tax law such as COP8 and COP9, the pressure on SMEs will only intensify. The very fact that the government’s own data places the bulk of the “tax gap” at SMEs shows that the strategy of the HMRC is to focus on ‘easier-to-target’ SMEs rather than truly challenge larger corporations.
What can SMEs do about it?
Unfortunately, the best option is to ensure that SMEs follow HMRC guidance as accurately as possible. As London and Birmingham tax accountants, we regularly work with SMEs to help keep them up to date with the latest tax news as well as ensuring that their finances and arrangements are all in order. Employing an accountancy firm will not only allow your business extra resource and expertise to focus more heavily on corporate tax arrangements, but as accountants work across multiple industries and sectors, it will give you the benefit of their experience gained from other companies and situations.
Speak to us today on 01216297768 or 02070784001 if you’d like to know more about tax arrangements and following HMRC guidance.