The Paradox of Capitalism (Kaivey): Why Amazon's UK tax bill has dropped 50% by Simon Black

Amazon make no profit at all on its postal deliveries. Years ago everything was delivered by a Royal Mail postman which was a low paid, but pleasant job if you didn't mind the cold weather in the winter. Up until a few years ago the postmen used bicycles and you could see their Royal Mail bikes chained up everywhere - and often not chained up at all because no one would nick them with their distinctive company colours. It was a little bit of Old England seeing the postmen on their bikes, but all that went with privatisation.

But when the government opened parcel delivery to the market things started to change. In the fierce competition delivery men often became self employed losing many benefits, like sick pay and pensions, but some delivery companies even gave jobs to anyone who had free time and housewives who had finished taking their kids to school could drop off a few parcels on the way home. They might be given two hours to drop off the parcels but in reality it took a lot more time, so some of these housewives never competed the task and their homes became filled up with undelivered parcels but no one ever checked on them to see if the parcels had been delivered.

Nowadays Amazon drivers come around in their domestic cars to drop off parcels, and they are always in a hurry. Amazon UK has been in trouble lots of times recently for under paying paying - or not even paying - their delivery drivers and their wage seems to be incredibly low. Even the postman nowadays pushes the parcels through the door before I have fully opened it and then he is off in a scurry, no time for a quick chat anymore, just a hello.

Anyhow, I can walk one way and within minutes be in miles of beautiful countryside and walk the other way and within 15 minutes be in a small town centre with a huge Tesco hypermarket.  I buy everything from Tesco including my clothes and almost everything else is bought online mainly from Amazon and eBay. I haven't been to a town centre for years with all that hassle and crowds.

But I was worked to death in my old job where life became very unpleasant which went on for years until it made me very ill causing me to leave work.

Simon Black, BBC

Amazon has seen a 50% fall in the amount of UK corporation tax it paid last year, while recording a 54% increase in turnover for the same period.

This snippet of news raised eyebrows this morning when it was revealed. So what's going on?
The answer is simple on the face of it.

Taxes are paid on profit not turnover. It paid lower taxes because it made lower profits. Last year it made £48m in profit - this year it made only £24m so it paid £7m tax compared to £15m.
What is more interesting is WHY its profits were lower.

Part of the reason is the way it pays its staff.

Amazon UK Services is the division which runs the fulfilment centres which process, package and post deliveries to UK customers. It employs about 16,000 of the 24,000 people Amazon have in the UK.

Each full-time employee gets given at least £1,000 worth of shares every year. They can't cash them in immediately - they have to hold them for a period of between one and three years. 

HMRC loses

If Amazon's share price goes up in that time, those shares are worth more. Amazon's share price has indeed gone up over the past couple of years - a lot. In fact, in the past two years the share price has nearly doubled, so £1,000 in shares granted in August 2015 are now worth nearly £2,000.

Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue - so profits are lower and so are the taxes on those profits.

But surely this extra income for the staff is taxed? Probably not.

HMRC rules allow employees to receive £3,600 worth of shares from their employer tax free every year. Most of these awards are below that threshold.

The employee wins through a tax-free windfall, Amazon wins because it hasn't got to pay any cash out, which leaves HMRC as the big loser.

This is not just allowed by UK tax law - it is required by it.

So, weirdly, the more valuable Amazon becomes, the less tax this particular bit of its business pays.

There is heightened sensitivity around the tax affairs of technology giants such as Amazon, Google and Apple. The challenge of adapting a tax code written for a bygone era to work effectively on technology multinationals who have socked billions away in low tax jurisdictions remains.

But the practice of giving staff shares is widespread, generally seen as a good way to promote loyalty and engagement - and is 100% legal. 

http://www.bbc.co.uk/news/business-40884753