We all know that Paypal is a huge global organisation. So why did they only paying £159,000 UK tax in the 2015-16 tax year? HMRC wanted to know the answer to this question and launched an investigation into their tax position. The result was Paypal’s additional tax bill of £2.7m paid back into our public purse. An excellent result for HMRC. But how did the situation arise in the first place?

PayPal’s worldwide business structure

PayPal is not one single business. The organisation is made up of several different companies, like its UK subsidiary. PayPal Inc is on New York’s Nasdaq stock exchange and reported $13bn revenue for last year. This is the ‘parent company’ of the whole organisation and it did not release any figures relating to its business in Europe or the UK specifically.

As reported by the BBC, PayPal UK passes the money it earns through other companies in the Paypal family. As it is not identifiable as company income earned through transactions in the UK, it is not subject to the same tax laws. That is why their 2015-16 tax bill was only £159,000.

What did HMRC’s investigation achieve?

PayPal UK were obliged to refile their accounts from the 2015-16 tax period which led to their total tax bill being £4.13m.

A spokesperson from the company said: “HMRC has been reviewing the company’s direct tax position. As a consequence, the company has agreed and settled its outstanding liabilities and as a result is not subject to any current enquiries.”

The extra £2.7m was paid by an “affiliated entity” and the company have not discussed any further details with the press.

Paypal UK declared a pre-tax profit of £1m in 2016 and £6.8m in 2017. In terms of revenue, in 2017 they took £32.2m, growth of 8%.

What do HMRC say?

This is a big win for HMRC, but in their typically understated style, their spokesperson merely said: “We do not comment on identifiable taxpayers. We make sure that large businesses, just like everyone else, pay all the taxes due under UK law and we don’t settle for less.”

It is important to remember that this is not HMRC’s money. Essentially, it’s our money. The taxes HMRC collect are used to run our country and they are becoming increasingly adept at preventing tax evasion and avoidance by these multinational companies. There is still some way to go, but it’s good to appreciate positive outcomes when we can.