HMRC has been accused of "blatant hypocrisy" after signing a deal with Amazon, leaving a British company to go out of business.
Salford-based cloud services provider DataCentred went into administration in August after losing a contract with Her Majesty's Revenue and Customs that provided 85% of its revenue.
Online technology magazine The Register reported that despite a government pledge to award contracts to small and medium-sized enterprises, the small British business was replaced at HMRC by international cloud giant Amazon Web Services.
Just moved all my services away from Datacentred, who were a great supplier. Thanks HMRC for making life of small businesses harder!
— Bruno Girin (@brunogirin) October 24, 2017
DataCentred customer Bruno Girin told Twitter: "Just moved all my services away from Datacentred, who were a great supplier. Thanks HMRC for making life of small businesses harder!"
Although Sky News was unable to reach DataCentred for comment, the company's Twitter account responded to Mr Girin's tweet with its own, saying "Thanks Bruno!" and including an emoji love heart.
Margaret Hodge MP, the former chair of parliament's public accounts committee, told Sky News: "This is a clear case of government saying one thing yet doing another.
"They say they want to support small businesses but they give the contacts to the big boys and let small businesses go bust.
"They say they want to be tough on tax avoidance but they use our money to give contracts to some of the world's biggest and most immoral tax avoiders.
"Surely this is blatant hypocrisy," she added.
Amazon has regularly been criticised for its tax avoidance activities, with the EU's competition commissioner Margrethe Vestager ordering it to pay back taxes this month after finding it had benefited from an illegal sweetheart deal with Luxembourg.
In the UK, the company paid just £7.4m in corporation tax, which is a tax on profits, in 2016 despite sales of £1.4bn that year – although it says it works in a very low-margin and competitive environment.
A spokesperson for Amazon stated: "We pay all taxes required in the UK and every country where we operate. 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 believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law," they added.
HMRC told Sky News that it had "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 spokesperson added.
The tax office said that it made its procurement decisions 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".