A taxing matter: are big corporation tax breaks damaging the economy?

Taxation has always been a controversial talking point, particularly when it comes to big brands and large corporations.

This has been especially relevant in the UK recently, with brands such as Amazon and Uber reported to be paying disproportionately low levels of tax through the use of creative and unusual company structures.

With many claiming that the time has come to tighten tax legislation in the UK and ensure that large corporations pay a fair and proportionate amount, we look at this issue in closer detail and ask, is anything is likely to change?

The Great Tax Dodge: how are firms minimising their tax burden?

The innovative private hire brand Uber is the poster-boy for paying minimal tax in the UK, with last year providing a relevant case in point. Despite the company’s turnover doubling to £23.3 million in 2016, it’s tax liability fell, with the main UK arm of the business paying just £411,000 overall. At the heart of this relatively low repayment was the business’s unique business model, through which its 40,000 UK-based drivers are classed as small, independent ventures that do not earn enough to pay value added tax (VAT).

Uber are not alone, of course, with other multi-national corporations such as Google, Apple and Amazon also boasting similarly modest tax bills. The latter turned over a staggering £1.46 billion in operating revenue in 2016, for example, of which £24.2 million fell into gross profit. Despite this, the brand paid just £7.4 million in tax in 2016, which was half of the 2015 bill and represented a significant percentage drop.

Amazon adopt a different company structure to Uber, of course, but both have sought out universal methods of minimising their annual tax bills in recent times. Both have historically adopted the controversial tactic of artificially shifting revenues from Britain to overseas operations as a cost-cutting measure. Uber continue to do this through a decidedly complex scheme that sees funds moved through the firm’s Dutch accounts, while Amazon stopped such practices last year after scrutiny from the then UK Chancellor, George Osborne.

The fall-out and impact on the economy

Importantly, both Uber and Amazon are operating within the existing parameters of UK tax law, which is an important observation. Still, such questionable practices drew the ire of the general public when they were discussed in the build-up to the last election, with Jeremy Corbyn winning widespread support by pledging to eradicate tax breaks for large corporations and reinvest this money back into services.

In contrast, the Conservatives were accused of tolerating such low repayments in order to maintain big business in the UK, and this was not received well as austerity raged and the NHS continued its perpetual decline.

There is also an issue of competitiveness, as the current tax breaks afforded to large brands have enabled them to steal an unfair advantage on many of their rivals. Uber’s main competitiors are all required to pay VAT on their earnings, for example, making it harder for them to keep pace with the market newcomers. This arguably impacts negatively on small business growth and the cultivation of a thriving economy, while it certainly places a greater tax burden on independent firms and households nationwide.