Facebook UK ends up with £11m tax credit despite global profits of £5bn

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Turnover at Facebook UK Ltd doubled in 2015 to £210m. Photograph: Stephen Lam/Reuters

Facebook’s UK business generated an £11.3m tax credit last year, despite the world’s largest social network making global profits of $6.19bn (£4.97bn), according to latest company accounts.

The credit at Facebook UK Ltd can be offset against future tax bills and is likely to raise more questions about whether the $370bn US group is paying its fair share toward the public finances in Britain.

Last week prime minister Theresa May told the Conservative party conference: “If you’re … an international company that treats tax laws as an optional extra … I’m putting you on warning. This can’t go on anymore.”

Until April this year all Facebook’s UK advertising sales were routed through its operations in Dublin, reducing its UK tax bill. Activities at Facebook UK, meanwhile, were confined to selling “sales support, marketing services and engineering support” to other companies within the Facebook group.

Turnover at Facebook UK Ltd doubled in 2015 to £210m, but this did not include a penny of the hundreds of millions pounds in sales income that the wider group is estimated to have received from British advertisers.

Losses for Facebook UK widened from £28.5m to £52.5m in 2015. As a result, the accounts showed Facebook UK ended the year with a tax credit of £11.3m, compared to a tiny tax bill of £4,327 for 2014.

The company reported a £4.2m current year tax charge as well as £15.5m of deferred tax credits, linked to staff share awards. Last year Facebook UK paid staff £71m in share awards.

Accounts also show Facebook UK expanded dramatically last year — doubling staff and turnover — in advance of the group abandoning its controversial tax structure for British advertising sales.

The number of people working for the business grew from 362 to 682 in 2015, including the addition of 200 staff within its software engineering team. Since then, a spokesman for the company said headcount has grown further, with more than 1,000 now working for the social networking group in the UK.

New staff have been taken on in part to help Facebook UK sell advertising directly to major clients, all of whom had previously dealt with Facebook Ireland.

The transfer of Facebook’s UK sales activity from Dublin to London came after former chancellor George Osborne last year introduced a new punitive rate of tax for multinationals deemed to be artificially shifting British sales overseas.

In a memo to UK staff in March, Facebook explained: “On Monday, we will start notifying large UK customers that from the start of April, they will receive invoices from Facebook UK and not Facebook Ireland.

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

“The new structure is easier to understand and clearly recognises the value our UK organisation adds to our sales through our highly skilled and growing UK sales team.”

As Facebook UK has taken greater control of sales to British customers it has hired new staff, many of whom are expected to move into its new offices at One Rathbone Square, near Tottenham Court Road in Central London, when construction is finished next year.

These changes mean Facebook UK’s next set of accounts — published in 12 months time — are likely to show an even more dramatic jump in revenues. There is also expected to be an impact on how much tax is paid to HMRC, though a number of factors including the tax credit could mean it may be some time before there are steep rises in Facebook’s UK tax bill.

In a statement, Facebook said: “We are proud that in 2015 we have continued to grow our business in the UK and created over 300 new high skilled jobs … We pay all the taxes that we are required to under UK law.”

In January this year, Facebook warned its US investors in its annual report that its UK operation could face higher tax bills in the future because Osborne had introduced a “diverted profits tax” for hi tech multinationals routing their UK income overseas.

Facebook told investors: “Many countries in Europe … have enacted new laws that could significantly increase our tax obligations … or require us to change the manner in which we operate our business. For example, in 2015 the United Kingdom enacted the Diverted Profits Tax … which could increase our tax obligations.”

Reaction among large tech firms to Osborne’s new tax have been mixed. Both Google and eBay believe they have found a way to continue sending UK sales overseas without incurring the punitive new tax. But Amazon and Facebook have chosen instead to unwind such arrangements.

When he first unveiled his effort to tackle multinational tax avoidance in 2014, Osborne said: “Some technology companies go to extraordinary lengths to pay little or no tax here … If you abuse our tax system, you abuse the trust of the British people. And my message to those companies is clear: we will put a stop to it.”