Over the past few years, Facebook has been no stranger to complaints and uproar over the amount of tax they pay here in the UK.
However, recent news may be a cause for celebration. Recent figures have shown that Facebook’s tax bill has more than tripled in the last couple of years. In 2016, Facebook’s tax bill hit £5.1m after a major overhaul of their tax structure. This year’s tax bill is more than triple that – at £15.8m.
After Facebook’s 2017 tax accounts were made public, the company suffered a lot of criticism from the media and policymakers over the use of offshore accounts and the proportion of tax paid to company profits.
While a £15.8m tax bill is enough to make anyone’s eyes water, it’s not much when compared to the overall profits that Facebook sees. The company collected a record of £1.3bn in British sales, meaning that the tax paid in this country only accounts for 1% of sales – even despite the seemingly hefty tax bill.
While Facebook increased its UK income by more than 50% last year, its pre-tax profits increased by only 6%. Taxable profits were further reduced by a £444m charge for mysterious “administrative expenses”.
Taking a global look – Facebook made around $20bn profit on total sales of $40bn, meaning that half of the amount of sales were converted into profit. Whereas in the UK, only 5% of sales were converted into taxable profit.
Yet Facebook still managed to reduce their £15.8m bill by a £8.4m claim in tax credits from granting its employees shares in the company. This means that the real figure is just £7.4m, less than 1% of its total sales.
Margret Hodge, a Labour MP and former chairman of the public accounts committee said that it’s “absolutely outrageous that Facebook’s UK tax bill is 0.62% of their revenue here; on an income of £1.2bn they should really be paying much more than £7.4m”.
Facebook is far from alone in being criticised for its tax bill. Amazon only paid £4.5m in the UK last year, despite their British sales reaching a total of £8.7bn.
These recent revelations are making people revisit the debate over how the UK can ensure US technology companies are paying a fair amount of tax.
Time to change the law?
Recently, Chancellor Philip Hammond raised the possibility of a new tax law for large technology companies. These companies are those mostly criticised for moving sales through offshore companies and paying modest amounts of tax in the UK.
Mr Hammond said at the Conservative Party Conference: “The time for talking is coming to an end. The stalling has to stop. If we cannot reach agreement the UK will go it alone with a ‘Digital Services Tax’ of its own.”
While Facebook’s tax bill may be enough to trigger fresh anger, its tax bill increase appears to mirror what’s happening to a few other big companies. Online payments firm PayPal has also announced that their UK subsidiary has agreed to pay an extra £3.1m in tax after a HMRC review.
PayPal said in a statement: “HMRC has been reviewing the company’s direct tax position. As a consequence, the company has agreed and settled its outstanding liabilities and as a result is not subject to any current enquiries.”
Twitter has also seen its UK tax bill rise from £815,000 to £2.4m in the last year. So, does this mark the start of fairer tax on big corporations, even if there’s still a long way to go?
What do you think about Facebook’s tax increase? Would you like to see new laws to bring US tech companies in line? Let us know your thoughts.
Want to learn more?
Subscribe to our newsletter to get accounting tips like this right to your inbox
About The Author
An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.