HMRC's switch to AWS killed a small UK cloud business

Questions raised over supplier lock-in, tax avoidance, SME agenda

Exclusive UK cloud minnow DataCentred went under after HMRC – its largest customer – pulled the plug on a services contract in favour of a deal with Amazon, the corporation recently accused by MPs of tax avoidance.

Manchester-based DataCentred signed an agreement with the UK tax authority two years ago via the G-Cloud framework: its OpenStack infrastructure ran a significant critical system within the tax department, a contract that underpinned 85 per cent of DataCentred's annual revenue.

However, The Register can reveal that six months ago the company was informed the tax collector would no longer use its services as it had revamped policy from being cloud agnostic to becoming an AWS fanboi.

DataCentred is not the only small UK cloud provider to have lost business with HMRC following the policy shift. We are aware of at least two others, although DataCentred appears to be the first direct casualty.

The business was started by TeleCity founder Dr Mike Kelly with £9m funding from venture capitalist John Moulton and local authorities. The firm turned over £1.2m in 2016, but was plunged into the red after losing the HMRC contract and subsequently went into administration in August.

Reg readers will no doubt debate the inherent weaknesses of being overly reliant on one customer, but also the irony of HMRC paying for the services of AWS, a firm sometimes criticised for its tax efficiency.

Since Amazon and Microsoft set up local cloud operations in the UK several years ago - renting rack space from other providers in the case of AWS - some senior figures in Gov.uk appear to have ditched their SME rhetoric, deciding they do like working with tech giants afterall.

Evidence

The Register has also seen evidence the Department for Work and Pensions has a policy to only procure public cloud services from Amazon, Google, or Microsoft. A DWP spokeswoman said: “We follow Government Digital Service guidelines, and procure for services in a transparent way.”

While there may be compelling reasons for that decision, the question is also raised as to whether Whitehall is swapping one set of large IT suppliers – famously described as the "oligopoly" by former Cabinet Office minister Francis Maude – for another.

Such a move also appears to make the IaaS part of G-Cloud redundant, which was set up to provide small cloud providers in the UK with a level playing field to compete for shorter-term government contracts.

HMRC photo, Gov.uk

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The Register asked HMRC how its decision aligned with the government's pledge to award contracts to SMEs; whether the department risked creating a new supplier lock-in by doing so; and if the department could be perceived to be rewarding bad corporate behaviour, as Amazon has repeatedly come under fire by avoiding tax.

An HMRC spokesperson said: "We have been in discussions about our longer-term plans for cloud provision and what's in the best interests of our customers.

"Hyperscale cloud technology is newly available in the UK and the larger cloud capability offers more resilient services at a significantly lower cost to the taxpayer."

The department said it makes decisions on its suppliers through a fair and open process, and in line with Civil Service rules. Normal financial and tax compliance checks will be undertaken as part of this.

The European Commission recently ordered Amazon to repay €250m (£222m) for benefiting from illegal and unfair state aid courtesy of Luxembourg.

The Amazon group denied it received any special treatment and that it paid tax in full in accordance with both Luxembourg and international tax law.

The business, run by Jeff Bezos, also previously said it pays all taxes required in the UK and every country it operates in.

"Corporation tax is based on profits, not revenues, and our profits have remained low given retail is a highly competitive, low-margin business and our continued heavy investment. We've invested over £6.4bn in the UK since 2010," Amazon claimed. ®

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