Multi-billion-dollar computer giant Microsoft agrees secret deal with HMRC that 'allows the company to avoid £100m of UK tax'

• Computer firm signed advancing pricing agreement with the UK in 2011 
• Over £8bn in revenue from UK customers sent to Microsoft Ireland account
• Corporate tax in Ireland is just 12.5 per cent compared to 20 per cent in UK
• Firm had £2.3bn revenue from UK customers in 2015 but paid £16.9m tax 

By Alex Matthews For Mailonline

Microsoft agreed a secret deal with HMRC to avoid paying over £100million in tax to Britain despite making billions from UK customers.

Microsoft Ireland's accounts show that the computer giant made £2.3bn in revenues from sale of hardware and software in the year to June 2015, but its British arm paid a poultry £16,9million in corporate tax.

Bosses avoided shelling out a fortune on tax bills thanks to a secret deal with the Government called an advanced pricing agreement (APA), reveals an investigation by the Sunday Times.

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Microsoft, co-founded by Bill Gates (pictured), agreed a secret deal with HMRC to avoid paying over £100million in tax to Britain

An APA is a contract organised ahead of time, and often lasting a number of years, by a tax payer and the authority -  regarding a pricing method for its transactions.

Over 140 of the agreements were made by the HMRC, some of which involved the world's largest companies.

The deals also allow profit to be sent to accounts registered in different countries - which in Microsoft's case was Ireland. 

Microsoft has sent over £8billion of revenue generated from British customers to Ireland since 2011, where corporation tax is just 12.5 per cent, compared to 20 per cent in the UK. 

Its deal with HMRC runs until 2017 and involves a structure that eventually leads to a company called RI holdings in Bermuda.

The European Commission is now clamping down on APA's with probes launched to ensure they do not breach rules on state aid.

South Norfolk MP Richard Bacon, who sits on the public accounts committee, has called for transparency when it comes to the tax records of companies such as Microsoft and has labelled their special treatment 'unfair'.

He told the Sunday Times: 'The average person is getting sick and tired of this kind of thing. These are strategies which are not open to most ordinary companies.

'It is the suspicion of most informed people that companies like Google and Microsoft get away without paying their fair share. [People] see that as wrong and unfair.'

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Microsoft sent revenue to its Irish arm (pictured, Microsoft Ireland's head office) to avoid paying millions in tax

By using a complicated strategy to register sales in a different country, Microsoft is not breaking any tax laws.

However, firms who employ such tactics are coming under pressure to pay more tax in the countries where their purchases are taking place.

While the revelation about Microsoft's money-saving scheme is sure to enrage British tax-payers, HMRC has reassured that APA's are not a way for firms to avoid paying what is owed.

A spokesman told the Sunday Times: No company will pay a single penny less in tax because of [advance pricing agreement]. These simply set out how the tax rules will apply on complex transactions ahead of time and we keep them under complex review.'

Microsoft said it complied with 'all rules and regulations worldwide, including in Ireland the UK.'