Amazon headlines fail to account for full contribution to UK economy

21 September 2018

Comment from Chris Denning, Head of Corporate Tax at MHA MacIntyre Hudson:

“Without getting into arguments about whether online shopping, where Amazon is a key player, is killing the high street, it appears the reporting around the UK entity’s 2017 results is somewhat unbalanced.

“While the merits of Amazon’s sales structure though a Luxembourg principal are questionable, the government is looking to address this, consulting and working with other tax authorities and relevant bodies, such as the OECD, on introducing ways to tax digital businesses selling remotely into the UK. In addition, avoidance measures such as the diverted profits tax legislation have been introduced to encourage multi nationals to recognise a more reflective level of profit in the UK in respect of their UK activities.  

“Notwithstanding the above, the furore around the UK subsidiaries results seems to skate over the fact that the company has probably paid more tax to the UK exchequer in 2017 than in the previous year.

“It can be seen from the accounts that headcount has gone up significantly, resulting in a significant increase in pay-as-you-earn tax (PAYE) and national insurance contributions (NIC). The increased headcount may have been as a result of Amazon (purportedly) moving more function and risk to the UK, in response to the possibility of diverted profits tax rules applying, which is obviously positive for UK plc.

“The main reason the corporation tax bill is low is because of the deduction for share based payments. These are unapproved arrangements, therefore subject to UK income tax and again will have resulted in significant amounts of PAYE and NIC, far in excess of corporation tax on the same amount of profit.

“The constant negative focus on the level of corporation tax multinationals pay in the UK always fails to take into account that the UK’s low rate is a hook for multinationals to locate function, activity and risk in the UK, which means they employ thousands of people as a consequence.

“While it’s always overlooked that corporation tax is a relatively small proportion of the UK’s total tax revenue, at around 7/8%, it is a key fiscal tool in attracting and encouraging investment into the UK.” 

For further information please get in touch with Chris Denning, Head of Corporate Tax Services or send us an online enquiry.