How can Google pay such a small amount of tax?

Google have been hitting the headlines for all the wrong reasons over the last few weeks.  The question is, “How can such a large organisation pay so little tax in the UK?”

PAYE and National Insurance

Remember that by employing staff in the UK, Google have to pay employer’s National Insurance at 13.8% on the total payroll.  On a couple of thousand, well paid technical staff this will amount to quite a lot of money.

Corporation Tax

Companies pay Corporation Tax on their profits based on their residence.  For most small businesses, a company incorporated in the UK with UK directors will be resident in the UK and therefore Corporation Tax will be due on the taxable profits.

When a UK company sell goods or services overseas it does not change its residence; ; the company remains UK resident and so the tax continues to be paid in the UK.  So, if Clearways Accountants provides some tax advice to a US based company, we would not pay US tax on that income.  Instead, we would pay UK Corporation Tax on that income.

In Google’s case, they are fundamentally resident in the US and therefore sales to the UK would not necessarily be subject to UK Corporation Tax.  In fact, Google go one step further.  They have set up a company in Ireland that contracts for all their sales and advertising income.  This is taking tax away from the US Inland Revenue Service.

What are the tax arguments for more UK tax?

  1. With staff in the UK, a service is being provided to the rest of the Google empire and therefore a profit should be made on those activities.  Usually a cost plus a mark-up is adopted for administration type functions.  And it may be that this is what has been charged by HMRC.
  2. The argument can be made that the staff in the UK do more than administration.  Rather they play an active role in generating the sales in Ireland.  In this case a higher mark-up or a share of the profit should be included in the accounts of any UK company or branch.

HMRC’s role

It seems fundamentally inequitable that large companies like Google can negotiate on the tax position whereas small businesses and the self-employed have no contact with HMRC and can be passed from pillar-to-post in trying to resolve their own tax issues.

From Clearways Accountants’ perspective we have undertaken corporate tax planning and therefore we understand the thought processes and technicalities behind the planning.  What we object to is the high-handed attitude of both the Chancellor and HMRC in dealing with tax payers.