If you didn’t already know this, prepare to be irritated.
Bigger companies and their CEOs tend to be eligible for, and are always partial to, a good tax loophole. In fact, at least 18 billionaires received benefits checks in 2020 because their tax returns placed them below the income cutoff, according to research from ProPublica.
In a landmark reform that was just announced today, a global minimum tax is expected to be implemented for the first time in history for companies who are active in EU Member States – meaning fewer ways for these companies to avoid their taxes altogether. This is expected to bring back $220 billion in annual tax revenue worldwide.
The 15% minimum requirement is a step in the right direction but shockingly, it’s still not as much as the little person is required to pay. With an HMRC reform that came into force on the 1st January that means side hustles are eligible for tax, the average Vinted or Etsy seller will probably still be paying more.
In this article, we’ll look at Amazon, Starbucks and Meta’s profit structures and how they’ve benefited from tax breaks and loopholes up to now.
In this article, we will cover:
The new side hustle tax
As part of a national initiative to curb tax evasion, digital platforms became mandated to share user information with HMRC from 1st January 2024.
The threshold for action is set at earning more than £1,000 in your side hustle. Once this milestone is reached, registering as self-employed becomes mandatory and this is primarily what HMRC will be checking for – you may receive a little nudge from them at this stage if you haven’t already registered.
But fear not – the taxman won’t come knocking until your earnings surpass £12,570, and from there your profits will be taxed at 20% annually.
How the super rich get lower taxes
Why do the affluent generally pay a lower percentage of their income and wealth in taxes than the average person?
It’s unfair, but a significant reason lies in the undertaxation of various income sources they benefit from that land exclusively in the domain of wealthy people – spanning from stocks and shares, to extensive joint ventures and partnerships, to inheritances.
While the average person needs to use the income they earn on important things such as energy bills and travel costs, especially as the cost of living crisis continues to bite, wealthier people have the luxury of using extraneous income to grow from even when it’s based on their perceived net worth rather than liquid assets.
In essence: they get by on the power of their reputation and their personal or business brands, and use that for leverage for further success, in a way the average Joe business owner may not be able to.
Three major firms paying less tax than Vinted sellers
We’re using Vinted as an example here, but really this applies to any small business or side hustle owner from Ebay sellers to Squarespace website owners.
Amazon: deductions via UK tax credits
Amazon’s main UK division paid no corporation tax in 2023 for the second year in a row after benefiting from the government’s “super-deduction” scheme for businesses that invest in infrastructure, which was introduced by Rishi Sunak when he was chancellor.
This tax credit was put in place to help aid businesses during the pandemic, but it was just for a limited time and ended on 31 March 2023, to be replaced by a new regulation called ‘full expensing’ which was announced in chancellor Jeremy Hunt’s autumn statement in 2023.
But not before the corporation declared that £1.6 billion of its takings were investment in infrastructure for their warehouses in the UK – and it is understood by the Fair Tax Foundation that as a result, Amazon’s main UK division paid no corporation tax (or came to some arrangement behind the scenes for an undisclosed amount).
Amazon also received a discount of £75 million in 2021. 💀
Starbucks: royalties and shadow companies
Despite 14 years in business and a Starbucks on every corner (with 735 UK outlets worldwide), it was reported that the conglomerate paid no UK corporation tax in the 2011/12 tax year despite making £380m.
Shockingly, they were able to write off most of their profit as ‘losses’ – and how they did that becomes a little more complicated to explain, but effectively:
- The owners of Starbucks own other companies that are relatively unknown to the public, that are commonly known as shadow companies, or shell companies. These companies are legally separate entities. We’ll call Starbucks shell company, Company B.
- They also made sure to incorporate Company B in a country that had lower taxes than the UK.
- Starbucks claims that Company B is actually the company that owns Starbucks’ intellectual rights, such as their trademarks and copyrights.
- Starbucks then goes on to claim that despite profits, they are actually ‘in debt’ and ‘paying interest’ on their intellectual property that they are renting from Company B, to the tune of…whatever their tax payment was supposed to be that year, coincidentally!
And thus, their tax expectations for the year end at zero.
2023 may finally be the year that their accounts end up being accurate and truthful when it comes to losses, however. Although they deny that boycotts are the cause a 9.4% decline in its market value this year, the company has lost nearly $12 billion in its stock market value as of this January.
Meta: the CEO’s $1 salary
Meta (or more specifically its founder Mark Zuckerberg) is currently using a perfectly legal but suspicious method of keeping his cash flow low on paper: he has assigned himself a yearly salary of literally only one dollar.
One-dollar salaries are “used in situations where an executive wishes to work without direct compensation, but for legal reasons must receive a payment above zero, so as to distinguish them from a volunteer.”
What started in the 1940’s as an honourable gesture from billionaires, wanting to aid in war efforts but not being allowed to as not providing pay was forbidden, accepted the modest sum in order to continue with their support – has morphed over the years into simply another tax avoidance method.
It is also considered a status symbol, to have your company afford you such a ‘low salary’ and provides kudos and bragging rights.
What actually makes Zuckerburg (and other CEOs like him) rich is that they take stocks instead of money as previously mentioned – and that seems to be working out in his favour, as it was last recorded that Zuckerburg’s net worth currently stands at £96.7 billion.
Conclusion
With this new reform and global minimum tax now in place, we can only hope that some of the shenanigans that these larger companies have been allowed to play out for far too long, will finally be mitigated. But as a final note to the small business owners out there: you are not them.
Please stay educated on all the tax deadlines and rules you have to follow, because as unfair as it may seem, there are different rules in place for the ultra-wealthy and most likely always will be.
To keep yourself safe, it’s best practice to seek advice from a financial advisor or accountant (or at least some quality accounting software) if you’re unsure, to keep records to track your finances, and, to adhere to what you need to adhere to until you get to a level to even consider these wild, higher-level tax bending strategies.
