Autumnwatch for the IT industry
Posted on 6th December 2014
No, not Bill Oddie and a lot of badgers, but rather a Be-IT look at the Chancellor of the Exchequer’s recent Autumn Statement and what it might mean for the IT industry.
Aside from the predictable political reactions from left and right to George Osborne’s pronouncements, there were two key things we took from the autumn statement that are of interest to us and everyone else in our line of work.
First, there is the scheme to tax all those large companies, including many of the ‘tech giants’, which use elaborate off-shore mechanisms to avoid paying tax. They will now be targeted by a new ‘diverted profits tax’, applied at a 25% rate.
Any regular reader of Private Eye will know that this will be a popular (and is a populist) measure: Facebook paid just £3,169 in 2013. Amazon paid £10m, Apple paid £11m and Google paid £11.6m. Other big names that regularly get a shellacking for their (totally legal, if morally dubious?) tax avoidance schemes, include the likes of Microsoft, Ebay and Linkedin. The latter is a key source of candidates for all recruiters, not just those in IT, so anything that increases its costs is likely to mean some of those costs are passed on to the end user, which means recruiters of all types – in-house and agency.
Similarly, anything that increases any tech business’s costs will almost certainly result in higher prices for the customer, however, the whole business of tax avoidance is a minefield for non-specialists and is better commented on by a specialist tax adviser*. Moreover, said specialists will already be advising the likes of Google on how best to respond to the autumn statement, and in particular how to challenge the concept of what exactly constitutes ‘diverted revenue’.
However, there is another angle to this. The political calculation may involve these companies acting logically by moving their tax status to the UK, where they will only be taxed at 21% on their corporation tax. This, from Mr Osborne’s perspective, is a much better scenario – gaining all the tax at 21% is better than the ‘diverted’ element at 25%.
The other key outcome from the autumn statement was the support for technology generally. Several articles online picked up on this, many noting the enthusiasm of industry body techUK, whose CEO, Julian David, said: “.. the Chancellor made it clear that tech has a fundamental role to play in the UK’s long-term economic future. The focus on skills, exports, science and infrastructure will all help the UK to compete successfully in the global digital economy. The UK tech sector has been an engine for growth over the last five years and today’s announcements will strengthen its long-term prospects.”
There are also new government initiatives to reverse the decline in UK students undertaking STEM masters courses and there is also a new £45m programme to encourage new companies exporting for the first time. It must be said though that we do seem to be continually hearing about STEM initiatives, but not seeing the results that government and industry both want. We know it is a long-term process, but the fact that we’re still talking about trying to ‘reverse the decline’ shows how far there is to go.
Finally, some commentators also noted that there has been a missed opportunity to provide even greater backing to IT in the UK, specifically in terms of the Internet of Things, where other countries, such as China and India, are now pulling ahead of us. However, all in all, it’s more than glass half full and with the latest Markit monthly survey of job placements showing that IT still leads the way in both temp and permanent recruitment, there are certainly reasons for the IT industry to be cheerful as we move into the festive season.
Gareth Biggerstaff, MD, Be-IT Resourcing
* Thank you to Stewart McKinnon, CTA and partner at M&S Accountancy and Taxation LLP for his help with this article. http://www.msactax.co.uk
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