HMRC

HMRC are losing out on heaps of tax from eBay. It has just been revealed that the company had paid only £1.2 million in UK tax from UK sales of almost £800m. They are just the latest company to be shown to be avoiding UK tax.

What these companies do is to heap costs on the UK company by such means as charging the UK company for services or even just for the use of the brand name. The payments go to an offshore company who then pay the corporation tax in a country like Switzerland or Ireland which has much lower Corporation tax than the UK. It would be very difficult for the company to legislate against this as countries can charge whatever rate of corporation tax that they like. It would also be very difficult to stop companies from having their costs in the UK and their profits elsewhere. This is all entirely legal.

It seems that eBay should really be paying £51m in UK tax. Therefore they have managed to avoid 98% of their UK tax, although they do pay the corporation tax elsewhere but at a much lower rate. In the case of eBay it is Luxembourg and Switzerland that they channel their money through. It does rob the UK taxman and the British people of a huge amount of money annually. If you add up all the tax saved by all companies who do this it is a phenomenal amount of money lost to the British people.

The Governments and people of those countries who have lower corporation tax rates benefit greatly from companies who may sell very little in those countries but who choose to pay their tax there.

The Government in the UK is now under great pressure to close these tax loopholes. As we know from experience the Government likes to be seen to be ‘doing something’ whenever one of these scandals appear in the media. This was how IR35 started. However, it is a difficult problem for them to solve as they cannot interfere with the tax policies of sovereign states who can set whatever tax rate they like.

Amazon paid no UK tax on sales of £7.6bn so that is a colossal loss to HMRC and the UK taxpayer. Facebook paid just £238,000 on sales of £20.4m. You wonder why they and eBay bothered at all.

Google paid tax of £6m on sales of £395m. One would expect more of this rather than less as smaller companies seek to emulate their bigger brothers.