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4 March 2016

Facebook may pay “millions” in tax in future, but it still only paid £4,327 this year

The company previously paid tax on its UK operations through Ireland. 

By Barbara Speed

So what has happened, exactly? 

According to today’s headlines, Facebook, notable for its tiny, four-figure corporate tax bills on its operations in the UK, will finally be shelling out “millions more in UK taxes”. 

Success! Finally, Big Business is paying its way! Wheel out the fizz! Bang the socialism gong!

Well, not quite. What Facebook has announced is that it will change its structure in future to more accurately represent the fact that sales made by its UK staff take place in, well, the UK. There are currently 850 Facebook UK staff, a number which may soon swell thanks to new headquarters currently under construction near Tottenham Court Road. 

Where did the sales “take place” before? 

Previously, most of these operations were routed through Ireland, which charges a rock bottom 12.5 per cent corporation tax, compared to the 20 per cent the company will pay in the UK. All profits from large advertising customers, including Tesco and Sainsbury’s, will now be charged UK tax, while a few smaller customers will still be dealt with through Ireland. 

An internal notice sent by Facebook and seen by the BBC reads:

“What this means in practice is that UK sales made directly by our UK team will be booked in the UK, not Ireland. Facebook UK will then record the revenue from these sales.

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“In light of changes to tax law in the UK, we felt this change would provide transparency to Facebook’s operations in the UK.”

What tax changes are those? 

The UK has introduced “diverted profits tax”, designed to clamp down on companies routing their profits through low-tax countries. This is set at 25 per cent and applies to any profits made after 1 April 2015. 

In light of this, Facebook’s choice makes sense: they’d rather pay 20 per cent in corporation tax than be hit with a 25 per cent punitive tax later.

When will we get our money? 

In 2017, Facebook will pay a higher tax bill – reportedly, into the millions, though Facebook has not released figures on the size of its UK business. 

This doesn’t mean that it has admitted any wrongdoing in its previous tax structure, nor will it mean that it will back-pay any tax to the UK government, as Google agreed to recently following investigation by HMRC. 

What about the tax for this year?

Facebook’s tax bill for 2015-2016 (and all years previously) remains the same: in this case, a generous £4,327 for the whole tax year. Its UK staff, meanwhile, received share bonuses averaging at £96,000 each. It’s possible that the company’s past will be investigated by HMRC, though this is still only speculation