Facebook pays only £238,000 in corporation tax on UK earnings of up to £175m
Facebook was accused last night of "disingenuous and immoral" tax avoidance after a new analysis of its UK business suggested the social networking giant paid just £238,000 in corporation tax in Britain last year.
Although industry experts estimate the company made £175m in revenue from its UK businesses last year, Facebook is able to avoid paying millions in corporation tax by diverting most of its sales via Ireland.
Annual accounts published yesterday at Companies House showed Facebook UK Limited declared turnover of £20.4m using the entirely legal scheme. Yet Enders Analysis, an independent research firm, has estimated Facebook's likely UK sales at £175m last year as the world's biggest social networking website has continued to attract advertisers.
Facebook is just one of a number of online giants that divert much of their UK profits through offices in Ireland or parts of Europe with lower corporation tax rates. One analysis earlier this year suggested that the five largest online companies – Apple, Amazon, Google, eBay and Facebook – managed to save as much as £650m in tax through such schemes. Amazon, which launched in the UK in 1998, is the UK's most popular retail website, with more visitors than Argos, Next and Tesco. Last year it had UK sales of £3.2bn in UK profits. But by registering its European headquarters in Luxemburg it has managed to avoid paying vast sums to the Treasury. Despite accountnig for one if four of all books sold in Britain, it paid no UK corporation tax.
Internet giant Google paid just £6m in corporation tax in 2011 on revenues of £395 million, according to its accounts at Companies House. But that was just a fraction of Google's actual UK turnover because filings from its own US parent company show it generated $4.05 billion (£2.53 billion) in Britain last year.
None of these schemes is in any way illegal but they are controversial given Britain's deficit and raise question marks over whether international online retail giants are doing enough to pay something back to the nations they benefit from.
Labour MP John Mann, who sits on the Treasury Committee, criticised the willingness of web based companies to avoid paying UK tax. "It's disingenuous and immoral for these hugely profitable companies not to be paying tax in the countries where they are based and make a profit," he said. "They benefit enormously from the country's internet infrastructure but do nothing to fund it. It's like driving a car with no tax. We would stand for it on our roads so why stand for it on the net?"
Mr Mann has suggested implementing a "traffic fee" which would charge companies that are predominantly internet based from being able to use and profit from British infrastructure.
"It could be modest," he said. "The British taxpayer is currently spending a fortune on upgrading the countries broadband network, something that these businesses will benefit from enormously. It's only right they should contribute."
Matthew Sinclair, Chief Executive of the TaxPayers' Alliance, said companies were choosing to register abroad because they had more competitive and less complex tax systems. "Too many companies can exploit the loopholes in the current tax system to minimise their bills, others do pay their fair share but the system is so complicated it is hard for the public to see that," he said. "If Britain wants to compete and ensure everyone pays their fair share then we urgently need to reform our taxes."
UK Uncut said the government needed to make sure large internet companies paid bigger tax bills. "David Cameron and George Osborne have the power to stop big companies such as Facebook avoiding paying their fair share," a spokesperson said. "Instead, this government has shown that it is extremely comfortable with the wealthy getting wealthier whilst the dole queues grow."
According to the latest analysis the London branch of Facebook made a pre-tax loss of £13.9 million last year against a £1.1 million profit in 2010 as it spent heavily on wages, even though staff numbers rose only slightly to 90 people.
Facebook UK's staffing costs more than tripled from £7.9 million to £24.8 million — equivalent to £275,000 per head.
Some staff such as London boss Joanna Shields, Facebook's vice-president of Europe, Middle East and Africa, were likely to have earned significantly more.
The staffing costs included a £15 million "share-based payment charge", which is understood to cover employees' income tax and national insurance on shares they received ahead of Facebook's Wall Street stock market flotation in May.
Staff at Facebook's Covent Garden office could receive an even bigger windfall over the next five years as they are in line for 7.3 million shares, potentially worth tens of millions of pounds.
Even though Facebook's share price has fallen sharply since the float on fears that it is struggling to make money from mobile, the world's biggest social networking website is still growing, reaching one billion users last week.
The site has 30 million users in Britain and Enders estimates its UK revenues could hit £240 million in 2012.
Facebook is able to avoid UK corporation tax because it says sales are processed in Dublin where it has a large international office.
Such a move is entirely legal but is controversial, especially because Facebook founder Mark Zuckerberg maintains that his website is not motivated primarily by money.
"Facebook was not originally created to be a company," Zuckerbeg said at the time of the stock market float. "It was built to accomplish a social mission — to make the world more open and connected.
Facebook declined to comment on estimates that it generated £175 million in the UK last year and defended their decision to locate their non-US headquarters in Dublin where they do pay corporation tax.
A spokeswoman said: "As is normal for an organisation operating in dozens of countries around the world, we regularly file reports about local operations. The information does not necessarily present a full account of overall global financial performance so it would be a mistake to draw any conclusions from these filings." She declined to comment on Mr Mann's remarks.