HMRC is looking rather red-faced today, after it emerged that Google paid just a tiny fraction of tax on nearly £400m in revenues. Why? Because of a useful loophole in the tax code.
According to documents filed at Companies House, Google’s accounts show a loss after tax of £24.1m for 2011. This is because the search giant doled out £51.4m in share awards to its employees. To bastardise Jennifer Lopez, ‘it’s not right, but it’s legally okay’.
Google has been leading UK tax inspectors on a merry dance for a few years now. It employs an army of accountants to route its turnover through Ireland where it pays a corporation tax rate of just 12.5%. Last year, it coughed up just £935,000 in tax on revenues of £2.39bn. And if you add up all the corporation tax paid into UK coffers for the six years to 2010, Google has paid a paltry £8m in total.
Earlier this year, Conservative MP Charlie Elphicke accused the tech giant of running a ‘magic roundabout’ of tax avoidance, where ‘massive profit’ became ‘tax loss’. But is it really Google's fault?
Last year, CEO Eric Schmidt admitted that Google’s contributions to HMRC were low, but said pointedly that it wasn’t obliged to pay any more under UK law. ‘We could pay more tax but we would have to do so voluntarily,’ he said. ‘There are lots of benefits to [being here]. It's very good for us, but to go back to shareholders and say, 'We looked at 200 countries but felt sorry for those British people so we want to [pay more tax]' - there is probably some law against doing that.’
Before the angry mob heads to Google’s Victoria HQ, however, there’s more to economic contribution than just tax. Google employs 1,300 people in the UK. It is also a huge investor in the engineering sector, increasing its headcount of British engineers by 40% to 250 in recent months. It has also been a great supporter of the UK start-up scene, launching The Campus, which offers free space to technology start–ups based in London's east end.
Moreover, in 2011, it finally paid (an almost) decent amount of tax, forking out £6.09m to the exchequer. While this may still look like small potatoes compared to its whopping global revenues - in the last quarter, profit rose 11% to hit £1.8bn – having Google as a friend, not a foe, remains invaluable to the UK economy.