Tax Tax Advice

Size isn’t everything except maybe when it comes to negotiating with HMRC

28 Jan 2016

Everyone knows the biblical tale of David v Goliath. It is an inspirational story that small businesses can use to show that size isn’t everything.

David, an Israelite armed with a staff and a sling defeats the heavily armoured Philistine giant Goliath.

This story has become a metaphor for the power of the underdog, but it appears Goliath may always win when it comes to the tax system, especially if you are a big multinational company like Google, Starbucks, Apple or Facebook.

Chancellor George Osborne and HMRC have been criticised after letting the internet search giant, Google, get away with paying a settlement to cover £130million of tax dating back to 2005.

The company’s tax status has come under fire because of the way it directs its sales and profits through Ireland to effectively reduce its bill.

Its sway in the UK has also been demonstrated by other settlements where it has actually paid more. For example, it has agreed to pay £380million of owed tax in France, suggesting the taxman in the UK has less mettle when it comes to taking tax from big companies.

The issue has led to calls for Margrethe Vestager, the EU’s antitrust commissioner, to investigate the settlement.

HMRC is often criticised for reduced tax settlements it agrees, known as sweetheart deals, as these are often reserved for global behemoths while small companies and startups toil and struggle to get their returns in on time at risk of instant penalties.

Other companies such as Apple and Facebook have also come under the spotlight for how much tax they pay due to the way they structure their companies around the world.

While not illegal it raises questions over whether small businesses and entrepreneurs would get away with setting up their companies in such a complex way and if the taxman would be so willing to negotiate.

Lobby group the Tax Justice Network has estimated that Google should be paying about £200m every year in corporation tax in the UK, but paid just £20.5million in 2013 on its UK profits when it declared $5.6billion in UK revenues, according to the Financial Times.

Google has responded to criticism, writing in the FT that it is complying with “international tax rules and how they work.”