There was much talk about technology companies, online sellers and digital start-ups in the Chancellor of the Exchequer’s Spring Statement earlier this month. While plans to revamp how tech giants like Facebook and Google are taxed won’t affect start-ups or new businesses, changes to tax for online marketplaces and platforms could.
Taxing the giants
The chancellor said that there should be a deeper analysis into how huge technology companies are taxed. This was a continuation of something he brought up in last autumn’s Budget, amid worries that the current tax system is not adequate.
He said that interim measures should be considered, such as taxing revenues instead of profits. The government is hoping to find a workable interim and long-term solution by working with international partners.
Online selling and taxation
Another key area of the Spring Statement was online selling. While the government acknowledges that online marketplaces and platforms such as Etsy, Ebay and Schpock are good for both consumers and the economy, they are concerned that the correct tax is not being paid on all transactions.
Some businesses are purposely avoiding paying VAT on sales, according to the chancellor, but he also mentioned others who were unfamiliar with how they’re meant to pay taxes as it had previously been done on their behalf. He said: “Some people who earn money from using these platforms may never have earned money without an employer to act as an intermediary between them and HMRC before and can find it difficult to understand and meet their tax obligations.”
What about small businesses?
In a consultation paper that went along with the Spring Statement, the chancellor said that he wants to target measures taken in a way that doesn’t cause problems for start-ups and growing businesses.
The tech sector employs more than 1.5 million people and in 2016 accounted for £6.8 billion of investment. To put this into context, this was 50% higher than in any other country in Europe. Despite this the global giants don’t pay much tax in the UK. Instead they channel transactions through countries with lighter tax regimes, such as Luxembourg and Ireland.
Unfairness recognised
The chancellor said that the way tax works for multinational tech firms at the moment threatens the whole system: “The current misalignment between where digital businesses are taxed and where they create value threatens to undermine the fairness, sustainability and public acceptability of the corporate tax system.”
It’s a difficult time for the UK to propose updating taxation on the digital economy, as any international consensus will be tricky to achieve. It could be that there will be a period of double taxation, where countries including the UK apply tax on turnover while others continue taxing profits.
Broadly positive
Experts have weighed in on the move to examine taxes regarding online sales. Associate tax director at Deloitte, Rachel McEleney said she thinks it’s broadly positive: “We welcome this call for evidence – many people have no experience of completing tax returns. However, any trading and property profits via online platforms may need to be reported. It’s not always clear whether a user is trading or selling unwanted possessions, and those who are trading do not always appreciate that this is the case.”
For financial advice on your start-up get in touch with the team at Turner Little. We can help make sure your business is working for you financially.
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