How Does Amazon Get Away With Paying So Little Tax?

  • The numbers behind the headlines
  • Legal loopholes
  • The taxes shrouded in secrecy

Michael Godsmark,

August 16, 2018

Love them or loathe them, e-tailing giant, Amazon, is a firm fixture of today’s consumers. From its beginnings as a bookseller, it now offers almost anything that you could ever need. From gifts to film streaming, appliances to groceries, you can have it all, and you don’t even have to leave the sofa.

Jeff Bezos’ brainchild has featured heavily in the news over the past few months. For while his online behemoth keeps growing, the taxes Amazon pays in the UK are somehow declining. It’s all completely legal, of course, but just how is it possible? We take a closer look the facts.

 

The figures

While Amazon’s tax figures have long been the case of scrutiny by critics and HMRC alike, the main story this month is that last year Amazon UK Services’ pre-tax profits almost trebled from £23.4m to £72.3m but its tax bill fell by well over a third, from £7.4m to £4.6m.

The Amazon UK Services subsidiary, which runs giant warehouse fulfilment centres and logistics across the UK, was able to defer payment of £2.9m, meaning its total tax bill so far is a measly £1.7m.

 

Say what? How is that even possible?

Amazon has increased the amount of shares it pays to its workers. In total, £125m was paid out in shares to its warehouse staff. The average total each worker received was around £3,000.

Thanks to tax breaks introduced in 2000, companies are allowed to give staff up to £3,600 a year in shares, completely tax-free. As a result, HMRC miss out on recouping the equivalent taxes had this been paid as part of a worker’s salary.

As shares in Amazon have boomed by a whopping 84% in the last two years, staff are more than happy with this arrangement!

 

Not all taxes paid are public

While Amazon are adamant all UK taxes are legally paid, the total amount they pay on a reported £11bn turnover on UK sales are not public knowledge.

All UK and most EU sales used to be routed through their overseas subsidiary in Luxembourg (Amazon EU Sarl), allowing some juicy tax breaks and some hefty criticism. They have since been slapped with a fine of £221m by EU for this little trick after it emerged the tax deal it had with Luxembourg was illegal.

In 2015, our government introduced the diverted profits tax in order to try and stop businesses using overseas companies to avoid paying tax. Now sales are booked through a UK branch of their Luxembourg outfit, and the rules state that tax information does not have to be made public for UK branches of an overseas company, only for businesses who are UK-based.

It’s entirely legal – it’s just the way the rules are.

 

What now?

For now, there’s no stopping them. With Amazon announcing that it will create 2,500 more jobs [] over the next year in the UK alone, we can expect more of the same to come.

 

We can help you lower your tax bill. Give us a call today to find out more.

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About The Author

Michael is an enthusiastic and cheerful individual who, when not hard at work, enjoys mountain biking, cooking curry and travelling to new places.

   @MichaelWDVLL

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