HMRC under pressure as underpaid tax by US firms surges
The UK’s tax collector is under pressure amid a surge in underpaid tax by US companies.
HMRC suspects as much as £8.8bn in tax was underpaid by US companies in the previous tax year, a jump of 57 per cent compared to the previous year, according to figures obtained by accounting firm UHY Hacker Young.
The rise means nearly half of all underpaid tax from overseas territories relates to American firms, which now account for 46 per cent of the £19bn thought to be outstanding.
The shortfall could add further pressure to Chancellor Rachel Reeves as she struggles to balance the books after unfunded spending commitments in areas such as defence and welfare, with businesses fearing that more tax rises in the autumn are inevitable.
Underpaid tax puts HMRC in a rut
The missing tax puts HMRC in a tricky position as the UK government seeks to strengthen economic ties with the US, in a bid to swerve President Donald Trump’s punitive tariff regime.
The US administration has previously complained that European countries have taxed major American corporations in a way that hands them a competitive disadvantage, citing things like the UK’s Digital Services Tax, which is levied on large internet services providers of which the lion’s share are based in California.
Phil Kinzett-Evans, partner and head of tax at UHY Hacker Young, said: “The amount of tax owed that HMRC suspects that US companies owe is continuing to grow at a scale that HMRC knows it can’t ignore.”
He added that HMRC “needs to tread carefully as it faces the challenge of ensuring the UK keeps a good relationship with the current US administration whilst also investigating US companies for underpaying tax.
“The less tax collected from US companies, the more has to be paid by other taxpayers.”
HMRC has been increasing the number of investigations into large US companies, such as in the tech sector. These companies have been accused by some commentators as underpaying tax in the UK by diverting their UK earnings to lower-tax jurisdictions such as Dublin in order to significantly reduce their UK tax bills.
UHY Hacker Young said a common way this is achieved is through ‘transfer pricing’ – where one subsidiary company pays another for goods and services, such as the use of intellectual property. Some US companies have been accused of using this system too aggressively to artificially reduce their UK earnings and their corporation tax bills.