Netflix paid £3.2m in tax on £940m of UK subscription revenue

Netflix paid £3.2m in UK corporation tax in 2019, despite making an estimated £940m from British subscribers who have joined the binge-watching streaming revolution.

Netflix UK, which enjoyed its best year in 2020 as pandemic lockdown conditions drove global subscribers past 200m, reported revenues of £120m and pre-tax profits of £13m in 2019 across the three businesses the US company has registered at Companies House.

The hundreds of millions of pounds Netflix makes from the monthly fees of the 11 million British subscribers the service attracted by the end of 2019 are funnelled through separate accounts at its European headquarters in the Netherlands.

The practice, common amongst big tech companies including Google and Amazon, has attracted criticism, with the Taxwatch thinktank estimating that in 2018 Netflix moved between £250m and £330m in profits from international operations outside the US, including the UK, to low-tax jurisdictions such as the Netherlands.

In the latest financial filing for Netflix Services UK, the company received a fee of €86m (£77m) in 2019 for operating as the service arm for its European headquarters.

In November, Netflix said it intended to start declaring the £1bn-plus in revenues it makes from British subscribers to the UK tax authorities from this year.

The company hit 11 million UK subscribers paying £940m in fees in 2019, according to Ampere Analysis. Last year, UK subscriber numbers hit about 13 million, making for revenues over £1.14bn. Revenue from British subscribers, who pay between £5.99 and £11.99 a month, with its £8.99 package by far the most popular, has more than doubled in the last three years.

The accounting change may lead to Netflix paying more UK corporation tax – the £3.2m bill last year is the most it has paid since launching in the UK in 2012, which is paid on profits not revenues.

However, it will depend on factors including the company’s increased expenses in areas including a rocketing spend on British-made productions. Over the last five years, Netflix has pumped at least half of the revenues it makes in the UK into boosting its content budget, as well as a service fee that the British operation will now start paying the Dutch operation.

Netflix’s $1bn budget, a 50% increase on 2019’s £500m, was invested in 50 TV shows and films including The Witcher, The Crown, The Pope, Sex Education, and Brad Pitt’s War Machine. About a third of all Netflix’s productions in Europe are made in the UK.

“We pay all the taxes required and are committed to paying an active role in supporting British production and creative talent for the long term,” a Netflix spokesman said.

“We are proud to be increasing our investment in the UK’s creative industries, helping to create thousands of jobs and showcasing British storytelling and culture to the world.”

Netflix has dramatically increased its presence in the UK, which is second only to the US in terms of content budget, with staff numbers rising from only 29 two years ago to 260 currently.

Netflix’s latest financial filing for 2019 shows that the employees at its biggest operation, Netflix Services UK, received average compensation of €287,000. Staff numbers averaged 67 last year but reached 170 by the close of 2019, as the company announced a new long-term lease on an expanded London headquarters.

Netflix, which in 2018 received a €57,000 tax rebate from the government, did not utilise the furlough scheme during the lockdown, which brought all film and TV production to a halt earlier this year. The company covered the wages of about 100 staff involved in making its original productions.

The company also donated £1.75m to the Covid-19 film and TV emergency relief fund, which aims to help the tens of thousands of freelancers who failed to qualify for any government support when productions halted.

Last month, Facebook said it was winding up Irish holding companies it has used to channel billions of profits to avoid paying taxes in the US, the UK and hundreds of other countries.