How Facebook Paid So Little In UK Tax

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December 16th 2018
Week 37
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How Facebook Paid So Little In UK Tax

The Social Networking giant paid just over £4,000 in UK corporation tax in 2014. We look at how it was able to do this.

Joining other controversial tax avoiders who have made headlines in recent years is Facebook. The news that the Social Network only paid just over £4,000 has been making headlines recently but it is actually an improvement on how much it paid the previous year - of around £1,000.

Just like Apple, Google, Amazon and Starbucks, Facebook has its HQ based outside of the UK and therefore is able to choose how it apportions its turnover, and thus profits. Posting an operating loss of £28.5 million on UK operations the company must have shifted some of its UK revenue abroad to a less costly tax regime (the corporation tax - the main tax on profits for a company - is currently set at 21 percent and due to fall to 20 percent next year). The Chancellor has already announced a diverted profits tax to combat this. In the March 2015 UK Budget it went by the nickname 'Google Tax' and aimed to tax companies moving profits offshore. It is thought the change to the tax code here will net the Treasury over £3 billion within 5 years.

Global figures for the firm show a turnover of around £5.9 billion, of which the majority is made up of advertising. The firm counts mobile advertising as a key growth area with £2.3 billion raised and growing. So, where did that money go in the UK?

Well, Facebook employs 362 UK staff from its current Euston, London offices. The 150,000 sq ft building is soon to be superseded by brand new offices on Tottenham Court Road at a lease cost of £17 million per annum. Staff, in 2014, were paid an average of £114,000 and on top of that given £96,000 in share bonuses - a total of £35.4 million. The costs all add up and, along with most profits living overseas, it is easy to see why the company has posted a loss.

Facebook has 1.39 billion active users and despite concern amongst investors is actually growing the massive user base - a 13 percent increase upon the previous year. Quite a few of these users are within the UK and many are voicing concerns regarding the level of tax paid.

The average salary within London is the Tech sector is around £63k (source: CWJobs) so in 2014 each of these taxpayers would provide the taxman with around £19,000. Facebook states that although the UK company did not post profits and paid little tax, all 362 of its employees were subject to UK taxes and this is true. Facebook would also have foot the employers national insurance bill of around £15,000 for each employee or a total of £5.4 million. What about the massive employee stock giveaway?

Each employee on average was provided with £96k in share bonuses. Providing the bonus as shares, such as under an Employee scheme would mean the shares would only be taxed upon disposal and the employee charged at either 18 percent or 28 percent depending upon their top rate of tax.

Overall expect to see closer scrutiny upon companies like Facebook. The diverted profits tax came into force April 1st 2015 and will tax at 25 percent any profits relating to UK activity that is deemed to be diverted offshore.

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