Facebook’s tiny tax bill sparks anger
It dominates many Brits’ lives, but Facebook paid less than £5,000 in corporation tax last year. Is it time to defriend the social network — or would we only be harming ourselves?
‘If time is money, then the Facebook.com website represents the most valuable internet property on the web today,’ said analysts in July. Nearly 1.5 billion people have an account with the social media giant, spending an average of 20 minutes per day on the site. The time which people spend on Facebook represents almost 20% of all time spent online.
In the UK, almost half of the population has a Facebook account. But the global technological behemoth paid less tax in the UK last year than the average British worker. Facebook UK’s corporation tax bill for 2014 was just £4,327 — over £1,000 less than the income tax and national insurance charged on a salary of £26,500.
Facebook UK’s tax figures were within the law, as the company reported a loss of £28.4m in the UK last year. But experts say this is artificial, as the company processes a lot of its UK sales in Ireland. Facebook paid its employees more than £35m in bonuses and its parent company in the USA doubled its profits last year.
Margaret Hodge, the former chair of the Public Accounts Committee, said Facebook seemed to be ‘using elaborate corporate structures and artificial devices to avoid tax’. They were ‘still refusing to listen to the voice of public opinion,’ after similar figures had emerged last year.
The amount of money which multinational companies pay in corporation tax has been the source of several controversies in recent years. EU regulators are currently investigating the tax affairs of Apple, Amazon and Starbucks, while firms such as Vodafone and Google have also used loopholes to avoid tax. The government said in May that it would raise an extra £5bn per year through clamping down on tax avoidance — but did not put any measures to do so in the Queen’s Speech.
Share the wealth
We have to accept this, say some. In a globalised world, outrage is futile: cracking down on companies just leads them to move elsewhere. If Facebook left Britain, millions of British people would lose out and the money the company spends on wages would be withdrawn from the economy.
Nonsense, say others — governments must get tough. Tax avoidance deprives us of money to spend on essential services like schools and hospitals. If governments aren’t powerful enough on their own, they must act together to collect what is rightfully due to them.
Others are dissatisfied by both arguments. Governments’ powers may be limited, but we cannot accept these firms’ irresponsible behaviour. We should follow the example of self-employed businessman Mike Buckhurst, who has uninstalled Google Chrome and avoids spending money in Starbucks or on Amazon. Our most powerful weapon is our custom. We must close our Facebook accounts.
- Will you stop using Facebook in response to this story?
- Is it pointless to try to stop tax avoidance?
- Design a Facebook-style news feed showing how you think different people might respond to this story.
- Write to the Chancellor, George Osborne, outlining three things he could do about tax avoidance and the advantages and disadvantages of each.
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Q & A
- How does this affect me?
- When the government can’t collect tax, it has less money to spend on services which people use. This makes it harder to build things or hire people to work for the government, like nurses or teachers.
- Doesn’t everyone avoid tax?
- Tax avoidance is legal, and some argue that it is natural to want to pay the lowest amount of tax possible. But there is a difference between tax avoidance — which often involves convoluted schemes and odd transactions which are against the spirit of tax law — and tax planning, which involves taking advantage of laws which parliament has approved.
- How does this affect my Facebook account?
- Facebook is free, so it makes money through advertising. A lot of its work, then, is dedicated to finding out what it should try to sell people like you.
- Corporation tax
- This is the tax charged on a company’s profits. In his Budget in July, Chancellor George Osborne announced that he was reducing the rate of corporation tax from 20% to 18%.
- Facebook has just 362 British employees, whose average basic wage was £112,718 last year. It employs far fewer than many other major firms in the UK (John Lewis, for example, has 88,700 permanent staff).
- Politicians have often promised to tackle tax avoidance and the issue featured during this year’s election campaign. But 58% of the British public said that the proposals put forward by the Conservatives, Labour and the Liberal Democrats did not go far enough in a pre-election poll.
- Tax avoidance
- HMRC (the government body which collects tax) describes tax avoidance as ‘bending the rules of the tax system to gain a tax advantage that Parliament never intended’. It normally refers to practices which are legal but seen to be against the spirit of tax law. It is different from tax evasion, which is illegal. HMRC figures showed a total £34bn shortfall in tax collection in 2012-13.