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Netflix is now the UK tax regulator's new target

Lianna Brinded
Head of Finance, Yahoo Finance UK
Photo: Netflix

The US digital streaming company Netflix (NFLX) is the latest tech giant to be scrutinised by the UK tax regulator HM Revenue and Customs (HMRC).

The Times reported on documents Netflix had filed to US regulators, in which they disclosed that their UK accounts were “under examination” by HMRC.

Netflix didn’t explain why HMRC was combing through its books but said: “HMRC regularly audits the accounts of UK companies and we’re currently engaged with them on this standard review.” HMRC declined to comment on the report to Yahoo Finance UK. 

US-listed Netflix has a market capitalisation of around $125bn (£97.5bn). It spends about $12bn a year on films and TV series for its mega-streaming service. While it is one of the world’s most valuable entertainment companies, it’s not nearly as profitable as other global tech giants, such as Google and Facebook — both of which have been in the spotlight for the UK tax watchdog.

Netflix made $485m in pre-tax profit last year. During the same period, it paid $135m in corporation tax, with $88m spent on tax bills outside the US.

In Britain, the government and regulators have been doubling down on getting more cash from US tech giants that count the UK as a major market.

READ MORE: UK announces ‘groundbreaking’ new ‘Facebook tax’ to raise £400m

In October, Britain’s chancellor announced a new “digital services tax” that is expected to target tech giants such as Facebook (FB), Google (GOOGL), and Amazon (AMZN). Finance minister Philip Hammond announced the new tax, which comes into force in 2020, as part of the 2018 budget.

“It is only right that these global giants, which are profitable in the UK, pay their fair share in supporting our public services,” Hammond said when announcing the new 2% tax, without naming any specific businesses.

After 10 years, Google settled an inquiry by HMRC by paying £130m in 2016.

Britain is Netflix’s third largest market after North America and Brazil. However, according to the most up to date accounts for the tech group’s British subsidiary, Netflix Services UK Limited, it employed only 14 people at its London office by the end of December to provide “marketing and support services” to Netflix’s main office.

The same accounts show that its British division clocked revenues of €26.9m (£23.9m) and just €1.27m in pre-tax profits. It also received €199,000 from the UK government, due to tax incentives for films and television shows produced on British soil.