US companies responsible for £1.7bn in corporation taxes considered a ‘risk’ by HMRC

US-owned businesses were responsible for 33% of corporation tax revenue from foreign-owned companies considered a ‘risk’ by HMRC’s Large Business Service at the end of the 2011-12 tax year, up from 19% the previous year, says Pinsent Masons, the international law firm*.

Pinsent Masons says that HMRC believed US companies were responsible for £1.7bn worth of corporation tax considered at ‘risk’ at the end of both March 2012 and March 2011.

US companies such as Google, Starbucks, and Amazon have all recently faced questions over their UK tax payments.

Jason Collins, Head of Tax at Pinsent Masons, says: "HMRC has been accused of treading softly with US companies and their tax payments. However, the fact that the US figure of tax payments considered a ‘risk’ hasn’t budged in a year suggests that HMRC is casting a very keen eye on what US-based companies are paying in tax.”

“By comparison, concern over corporation tax payments from UK companies and non-US overseas companies appears to have been decreasing over the last year.”

Pinsent Masons says the amount of corporation tax that HMRC considered at risk from UK companies fell by 16% (£2bn) from 2011 to 2012, while the respective figure for non-US overseas companies was a 53% fall (by £3.8bn).

However, Jason Collins adds that just because HMRC is not reducing the amount of US corporation tax considered a ‘risk’, it does not mean that more tax is due from US companies.

Jason Collins says: “HMRC might be casting its net wider when it weighs up what it thinks companies might have to pay in corporation tax as it tries to boost revenues, but not all of the taxes considered a ‘risk’ by HMRC will be collected. Quite simply, tax might not be due.”

“In fact, Pinsent Masons says the amount of extra corporation tax collected by HMRC from US companies fell to £245m last year from £313m from the year before. By contrast, HMRC’s investigations into non-US overseas companies’ corporation taxes produced an additional yield of £984m last year, double the £472m from the year before.

Jason Collins says: “It does seem that HMRC has been processing investigations into US companies at a much slower rate than with other overseas companies. It may be the case that HMRC is looking at some US cases in more detail than it is with cases from other countries. For every pound of extra tax collected, HMRC has identified another that might be at risk.”

However, Pinsent Masons says that although HMRC appears to be collecting tax at a greater rate from non-US overseas companies than from US companies, the yield from these investigations appears to be well below what HMRC would expect. 

Jason Collins says; “HMRC expects its eventual compliance take to be on average roughly half of what it considers a ‘risk’. While the corporation tax at risk for non-US overseas companies fell by nearly £3.8bn over the last year, HMRC brought in just over a quarter of that figure in extra tax. Unless very significant additional new risks were added during the year, it appears that the yield from non-US overseas companies was below the average.”

“This suggests HMRC is now casting its net unreasonably wide when it comes to deciding which tax payments are a ‘risk’.” 

“HMRC has some very, very tough targets on collecting additional tax but it needs to be careful that it doesn’t get so tough that it turns the UK into a hostile business environment for non-UK businesses.”

The total value of corporation tax considered at risk by HMRC’s Large Business Service declined from £21.2bn in 2011 to £15.4bn in 2012.

*HMRC’s Large Business Service is responsible for the taxes paid by the 770 largest businesses in the UK. The figures given are for HMRC “tax under consideration”, which may include both potentially underpaid tax and the risk to the Exchequer from companies litigating over amounts of tax they have overpaid. Data as of 31 March 2011 and 31 March 2012.