A step towards HMRC's understanding of digital tech businesses

From January to April 2017, Ipsos MORI conducted qualitative research in the form of 50 in-depth interviews with UK digital tech businesses on behalf of the UK's tax authority, HMRC. 

Today, the report was published. It aims to provide exploratory findings on tech businesses' attitutes towards tax in order to indentify issues for further investigation. 

Funding:  As UK investors are more risk-averse than their US counterparts, tax incentives play an important role in encouraging investment. It is not unusual that one of the first questions is whether the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS) could be used and interviewees suggested that their thresholds should be raised in line with the funding required to build up a digital tech business.

Cash flow management in a lengthy, loss-making development phase is challeging. Allowing more flexibility in paying VAT and employer national insurance contributions (NICs) - or even a renaissance of the employer NICs holiday - could make a big difference. Timely payouts in respect of R&D tax reliefs are also crucial, as recently underlined by the CIOT's expression of concern regarding increasing HMRC processing times.

The knowledge gap between HMRC and digital tech businesses is often wide. While HMRC is perceived as failing to understand issues faced by small digital tech businesses, business founders thought tax compliance was important, but too burdensome and complex. The report itself should be able to help with the former issue, as it explains digital tech business models and drivers. Interviewees suggested that the latter could be addressed through further digitisation of HMRC's processes and by HMRC's publication of more accessible guidance, including worked examples. 

Clearly, there is a lot that HMRC and the UK Government could do to help UK digital tech businesses. It remains to be seen which ideas will be taken up.