Chin up, SMEs. You might get crumbs from Big Tech tax clampdown – UK MPs

Want more govt business, you say?* You're a riot, old chum

Small businesses could be handed hundreds of millions in tax cuts out of the cash raised by forcing the likes of Google to cough up more to HMRC, MPs heard in a debate about digital tax yesterday.

Tory MP Neil O'Brien, who brought the debate, said international tax treaties had been designed in an era of physical premises before US tech firms could pick and choose the jurisdiction where taxes are lowest.

He cited the example of Google making £4.3bn of sales in the UK in 2014. "In line with its global profit margin of about 26 per cent, that would have meant about £1.1bn of profits to pay tax on – and, in turn, a corporation tax payment of £220m. However, [Jonathan Ford in the Financial Times] reports that in that year it paid only £30m in corporation tax."

O'Brien added: "It feels like we might expect a bit more of the value created by UK users to be reflected in taxable value in the UK.

"Realistically, a new tax on large tech firms is unlikely to raise more than a few hundreds of millions of pounds, which is not a huge amount in the grand scheme of government spending but nonetheless enough to help level the playing field a bit and allow the government to do more to cut tax on small businesses."

Earlier this month, the European Union proposed a 3 per cent tax on the sales of US tech firms with significant digital revenues in Europe and with a global turnover of €750m (£656m).

Mel Stride, financial secretary to the Treasury, told MPs she was "very serious about this matter".

Chris Philp, Tory MP, said that if the European Union does not move quickly enough to implement the sales tax – within the next 12 to 24 months – the UK should take unilateral action.

"I do not think that, if we took unilateral action, Google or Facebook would suddenly refuse to do business in the United Kingdom. If they did, they would be pulling out of their second largest global market."

The Treasury recently published its position paper on corporate tax and the digital economy, although has yet to flesh out the details. The Organisation for Economic Co-operation and Development has also produced a report on the same issue as part of the work on base erosion and profit shifting in the UK.

"It is significant that both the European Commission and the Treasury have independently arrived at some similar conclusions. In fact, both the Treasury paper and the European Commission put forward two options: a comprehensive international reform, or an interim tax to be levied before such a reform can be agreed internationally," said O'Brien.

The government has previously been criticised for not doing enough to crack down on digital businesses. Former chancellor George Osborne was slammed for heralding a £130m settlement with Google for back taxes over ten years as a success. Richard Bacon MP noted the process had taken longer than the Second World War to negotiate.

On the subject of helping small businesses, Labour MP Peter Dowd raised HMRC's delayed digital taxation plans as a setback to SMEs. Under the revised plans, changes to VAT reporting will come into effect from April 2019. Businesses above the VAT threshold of £85,000 will have to provide their information to HMRC through Making Tax Digital software.

Dowd said: "The mandated start time for small businesses to file online for returns will coincide closely with Brexit, so there is a serious risk that they will be overwhelmed with the nature and scale of changes required during that period, especially in relation to digitalising tax returns.

"Despite the minister's promises over the past year, I am not quite sure that enough has been done to trial the software and that should be looked at." ®

* UK.gov's promise to pour cash into SMEs was just hot air.