Tax UK Tech Startups at the same rate as Google and Amazon

Further to our earlier post on the incipient unwinding of the UK consumer tech startup scene, it doesn't help that any that do survive will cost significantly more to run than the indstry heavyweights they compete with.

Google's tax rate in the UK is between 2.5% and 0.25% of revenues, depending on whether they make £4m or $4bn out of the UK - Pc Pro.

Google bills all online advertising via its European head office in Ireland, and at the hearing, Google's vice president of operations for Northern Europe, Matt Brittin, said his firm uses tax havens including Bermuda to increase shareholder value, but said the company obeyed the letter of the law. Last year, it posted £395m in revenue and paid £6m in UK taxes; however, a US SEC filing showed it made sales attributable to UK addresses of $4bn (£2.5bn).

Amazon is similar - As PC Pro previously revealed, Amazon.co.uk is considered a "fulfilment" company for the European branch of Amazon, which is based in Luxembourg, and paid £1.8m in tax last year. However, the evidence submitted to the PAC showed £3.35bn in sales were from the UK - 25% of Amazon's sales outside of the US. If all the tax was on UK only revenue that's a maximum of 0.05% (and more like 0.0013% if only 25% of tax paid is from thre UK)

You either have to believe these businesses perform far, far worse than their corporate average, or you have to believe that their tax revenues are underpaid.

Now, compare this with the tax that any UK technology company pays in the UK, which, for a small limited company is 20% on the first £300k and ratchets up to 23% at £ 1.5m. What this in essence means is that any UK tech startup starts the game with both hands tied behind its back vs the major players.

Now, let us make a heroic assumption that a viable startup's taxable income is similar - as a % of sales - to Amazon or Google (in fact it's probably worse). This implies that the UK startup is spending between 10x and 1000x more on it's tax bills per £ earned. This is an "order of maginitude" rather than an exact figure, but it makes the point - the risk of a startup is far higher than that of a major corporate, but the rewards are structurally far less.

This is also an a**e-to-face reward structure, and certainly not the way to give the UK's technology entrepreneurs a boost, especially if you are hoping they will lift the UK out of a depressing recession.....one could (and in my view should) make a case for near zero tax for startups until the position is equalised