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Starbucks pays UK corporation tax of £8.1m

Payment nearly matches total contributions paid over past 14 years but critics call for coffee chain’s accounts to be more transparent

Starbucks vaccination

by Rob Davies*
Starbucks paid nearly as much corporation tax in 2015 as it did in its first 14 years in the UK, after bowing to pressure to scrap its complex tax structures.

However, it still faced criticism for a lack of transparency that makes it hard to determine whether it is paying a fair amount of tax on its frappucinos and espressos.

The Seattle-based coffee house posted a pretax profit of £34.2m for the year to the end of September, up from £2m the year before.

The improvement came despite a dip in sales from £409m to £405m, as it offset the revenue decline by cutting expenses and selling company-owned stores to franchisees.

It also paid £8.1m in corporation tax at a rate of 24%, above the UK corporation tax rate of 20% due to a one-off change in accounting practices.

The tax contribution for 2015 was only slightly less than than the £8.6m it paid over the 14 years after its 1998 UK debut, despite £3bn worth of sales in that time.

Starbucks became the poster child for corporate tax avoidance in 2012 after details of its meagre tax contribution emerged. It was accused of using artificial corporate structures to shift profits out of the UK into lower tax jurisdictions.

The furore prompted a deal with HMRC to waive tax deductions and pay £20m in voluntary corporation tax over two years, including £11.2m last year.

Starbucks has also shut down a UK company named Alki that was part of a labyrinthine network designed to cut taxes at its former European office.

Elements of its European tax structure were ruled unlawful by the European commission in October, with millions of euros of fines expected to follow.

Tax accountant Richard Murphy said it was impossible to know if Starbucks was still aggressively avoiding tax until accounts for its European parent company, Starbucks EMEA, are published.

“The company is declaring a profit and appearing to pay a fair tax rate on it but the fact is we have no clue whether the profits on which tax is paid are fairly stated.

“So we have no clue what royalties are being paid to related companies, what use Starbucks is still making of tax havens and whether as a result fair tax is being paid on fairly stated profits in the UK.

“If companies like Starbucks are going to claim to pay fair tax they have to realise it’s a lot more complicated than calculating a percentage tax rate. It’s showing that the profit is right that is now the critical issue and Starbucks are nowhere near doing that.”

Murphy called on Starbucks to join the Fair Tax Mark scheme, of which he is a director, a watermark system for companies that pay their share to the exchequer.

The coffee company’s increased UK tax bill was partly the result of a strong year in which like-for-like sales grew by 3.8%.

Starbucks said in-store technology such as wireless charging Powermats and super-fast Wi-Fi had helped boost sales. It also cut costs by renegotiating leases, closing unprofitable stores and selling others to franchisees. Administrative expenses have been reduced, while it benefited from lower coffee prices, leading to an increase in its operating profit margin from 0.5% to 6.9%.

Starbucks opened four new company-owned stores, 29 franchises and 21 licensed stores, which it claimed had created 800 new jobs.

The company plans to start offering its baristas the “national living wage” to staff from April 2016, including those who are under 25. This is set to start at £7.20 an hour, less than the Living Wage Foundation’s latest recommendation of £8.20.

The group’s highest-paid director pocketed £282,842 during the year, including pension contributions.