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How will Amazon’s tax dodging affect UK SMEs?

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And Amazon once again has its corporation tax rates thrust into the media spotlight. Company filings showed the retailer’s UK operation paid just £3.1m in taxes on sales of £4.2m last year – that’s less than it received in government grants.

Amazon consistently argue that they work within the law and make other tax contributions, such as National Insurance payments. But debate has sparked over whether it’s enough, as it was revealed that the company also received significant tax breaks for new warehouses.

Investigations have found that Amazon has pushed the tax rulebook to its limits and left authorities unable – or unwilling – to impose fair taxes on the multibillion-pound organisation. All of the company’s sales are booked through its Luxemburg operation, Amazon EU Sarl, through staff from its British head office in Slough. The location through which deals are negotiated is a key indicator of whether a business is taxable in the UK.

Hearing the news that Amazon can still get away with not paying its fair share, British businesses that pay their tax in full feel treated unfairly. HM Revenue and Customs should have undoubtedly taken a tougher line on Amazon to stop their anti-competitive behaviour. 

The case does not just put other businesses at a disadvantage: the government now fears that a suppression on tax loopholes used by global companies could discourage them from investing in Britain. The prime minister has called for a coordinated international effort to tighten tax legislation.

Others wonder if by pushing the tax rulebook to the limits, multinationals are unfairly putting UK SMEs under the same spotlight and causing further red tape. Vince McLoughlin, partner at Russell New – a firm of business, tax and charity advisers – fears that tougher controls could hinder growth: “The danger is that as efforts are made to crack down on the avoidance schemes practised by the multinationals, the measures used will bring forth another raft of red tape, which will not be targeted but impact on all businesses, large and small alike.”

McLoughlin points out that 1,466 new laws were introduced over the last year, compared with the 1,355 introduced in 2011. This represents an eight per cent increase, suggesting that David Cameron’s red-tape cutting agenda may have slowed.

“This is a worrying sign that the government’s stated aim to reduce red tape for businesses by lowering the number of new laws has taken a hit and may be running into difficulties. As more multinationals are thrust into the spotlight for tax avoidance schemes and the government pursues its objectives of preventing such schemes, the red tape is only going to increase and thus cause more unwanted headaches for UK SMEs.”

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