... ask MNers to boycott Starbucks?

[legoballoon]

Personally, I won't be spending any money there again.

When I read the 'we pay our fair share of tax' statement, I almost choked on my (home made) hot chocolate. It's one law for the rich, another for us now is it?!

I think we should support small, UK-based independent coffee shops. Let's support businesses that generate wealth that is shared by local people.

My local independent coffee shop doesn't pay corporation tax either despite having a high turnover. By the time it has paid salaries, business rates and rent there is no profit left to pay corporation tax on.

Because everybody is buying their coffee in Starbucks instead.

But skippy, HMRC has constructed its rules and from that developed its budgets in the expectation that someone like flowery will use dividends in the way she does. There will still be a tax take from those dividends, just lower on a personal basis and perhaps higher on a corporate basis. As they see things that don't work how they expect, they introduce other changes eg IR35 which stopped people acting as a "consultant" to their only employer.

Skippy again that isn't true - if the turnover is high, the lack of profit is down to high costs, which are higher for a single independent with no bulk discount, ability to move raw product between outlets, central training programme etc.

Well in my opinion it's how far you go, how complex these schemes are.

Flowery is clearly acting within expected remit of uk taxation law.

If your employing experts to effectively outwit the governments intentions by using ever more complex schemes to exploit unintentional loopholes in the law then morally?? That's where I think it's suspect.

Goodness Skippy you're a bit stroppy!

Perfectly easy to engage in debate without that, I'd say.

Yes, I will hold my hands up. Maybe it's not entirely accurate to say no one pays more tax than they have to. I'm sure you are on a higher moral plane than me and voluntarily hand over wads of cash to HMRC to assist with the budget deficit.

So shoot me, I don't do that. And I don't know anyone else who does either. So from my own experience, no one pays more than they have to.

although the law recognises that everyone will try to minimise the tax they pay (and HMRC conversely, is charged with collecting as much tax as it can)

has Starbucks behaved unlawfully - is it avoiding payment?

"But skippy, HMRC has constructed its rules and from that developed its budgets in the expectation that someone like flowery will use dividends in the way she does. There will still be a tax take from those dividends, just lower on a personal basis and perhaps higher on a corporate basis. As they see things that don't work how they expect, they introduce other changes eg IR35 which stopped people acting as a "consultant" to their only employer."

Yes I'm aware of this.

Basically what happens is that tax shifts onto things that are easy to tax.

So consumer goods - easy.

Minimum wage staff getting paid by PAYE - easy.

Rich people with businesses and complex investments - hard.

So people like flowery have a great many options. E.g, structure the business (assuming it is one, and not disguised employment) as self employed, and pay income tax through self assessment, go for a Limited Company and pay corporation tax instead, and potentially go beyond this with things like offshore companies as well.

So I wouldn't say so much that HMRC (the government really), are happy about this, the are just resigned to this, and have taken steps like cutting corporation tax with a view to encouraging people to pay it.

Income tax is only for little people - you pay it if you earn £60k, but most will baulk at paying it on £600k.

Bear in mind that cleaners are taxed at 32%, corporation tax is 24%/20%, and in theory the rich are taxed at 50%/52%, but on the whole (with a few exceptions) they find that excessive so they just avoid it.

"Skippy again that isn't true - if the turnover is high, the lack of profit is down to high costs, which are higher for a single independent with no bulk discount, ability to move raw product between outlets, central training programme etc."

Central training programme? For a single coffee shop?

Coffee has a very high gross margin.

I could see perhaps that a corner shop selling baked beans and loaves of bread might struggle to compete with say Tesco when it cannot buy at Tesco's selling price, but an independent coffee shop still stands to make a large gross profit on each cup. The issue is almost certainly lack of sales.

"Goodness Skippy you're a bit stroppy!"

Sorry.

"So shoot me, I don't do that. And I don't know anyone else who does either. So from my own experience, no one pays more than they have to."

I've met several people that do. But I imagine it varies from sector to sector.

Ah, Starbuck's brand. An interesting point and one I'd like to address before the BBC, if that's OK with everyone.

Question: brands are valuable to companies and it's important that their value is maintained (because a good brand means more people buy your goods and services). But where do brands naturally 'live'? They don't have physical form, so you can't point to something tangible and say 'there it is'. Come that that, what is a brand anyway?

Most groups of any size in the B2C market (less important for B2B) recognise that they need to actively manage their brand to maintain its value. That means maintaining the registrations of intellectual property that can be registered (trade marks being the most important in the context of brand). Often groups will centralise the ownership of all the registered IP worldwide into one company, which is expert at registering and maintaining that IP. That's not enough, however, to support a brand. You need to run advertising campaigns, agree marketing strategies, develop a brand message. And enforce your brand strategy around the globe.

So where do you think Starbucks should manage its brand from? There are 200 odd countries in the world in which Starbucks operate - are you seriously suggesting that it makes sense for Starbucks to expect every single local market to manage its little chunk of the global brand? Of course it doesn't. It only makes sense to do it centrally. The UK isn't the 'natural' home for the Starbucks brand. There isn't really a 'natural' home for any global brand.

So if you accept the basic premise that global brands need to be managed cetrally, and that the UK is no more the natural home for the brand that France, or Germany, or Australia, or anywhere else, then don't be surprised if the brand isn't managed here.

Should we be surprised that the UK Starbucks company is paying to use the brand name in the UK? No, of course not. Undoubtedly sales are increased by using the Starbucks name compared to not using it.

The transfer pricing rules require that Starbucks UK pays the arm's length price to use the brand. No more, no less. That's all it's doing, people, paying the market rate to be able to put the name Starbucks above the door.

Flowery that's good that you take advantage of the tax rules to pay yourself a small salary, and then a dividend that is not subject to NIs. However, it is also not tax deductible for your company so it pays more CT as a result of you drawing dividends rather than salary.

These tax rules allow small business owners to pay a bit less tax which is fair compensation for the risk they are taking, the employment they are hopefully creating either now or in the future etc. I think very few people would think you should be paying more tax by drawing a salary and deducting PAYE.

However - small businesses like this are not like Starbucks et al. Large global companies do not need this kind of extra help. I'm sure you know all the things I have mentioned above but the majority of people in the UK know precious little about tax legislation and it does no one any favours to pretend that by closing loopholes that they take advantage of would be a problem for small business owners.

The reason I said it wasn't sales is that LadyMuck is describing the independent as having high turnover but still no profit to speak of, so I took that at face value. Have no idea if there is a nearby Starbucks.

With regard to your other points, I know of a number of restaurant businesses of various size and it is very rare for a single outlet to make much if any profit because of the factors I have mentioned. Training courses might involve how to assess portion control, how to set up a mystery shopper programme to improve service etc.

I'm in. Most villagers here use the lovely Deli which does proper coffee, instead of the three big chains on the high street. I'll do Costa or Caffe Nero if someone insists but not Starbucks, their coffee is awful. Tax revelations support my choice.

...which would drive profit margin and repeat business respectively, as two examples.

Actually, it gives HMRC a real headache if people try to pay more tax than they're legally obliged to pay.

Do you remember when Hazel Blears MP was criticised for 'switching' the addess she claimed was her principal private residence (PPR) for capital gains tax purposes?

The PPR legislation is explicitly designed to allow people to do just that. It's a tax break, with the non-tax policy aim of 'smoothing' the housing market (which most people will agree is a reasonable policy). So what Hazel Blears did was exactly within both the letter and the spirit of the PPR legislation.

Nevertheless, she felt obliged to write the cheque.

Last I heard, HMRC still haven't been able to cash it - there's nowhere for the money to go. It's not owed, it doesn't represent the payment of a tax liability. It's just a nothing.

I know several hundred people who earn around £600k (partners in accountancy and law firms). Every single one of them pays his/her income tax. Their average effective tax rate is around 47%.

Well, if you just wrote HMRC a cheque for no reason that might cause them to scratch their heads.

But the idea that say being self-employed instead of running a limited company (and paying more tax because of the difference in structure) gives HMRC a headache is just wrong.

It is usually much simpler to operate in a tax-inefficient manner than a tax-efficient one, and obviously the most efficient possible structure will be very complicated indeed and can cost HMRC MILLIONS in legal and other costs.

It's disingenuous to imply that not avoiding tax is complicated.

The reason their effective tax rates are lower than 50% is due to (i) pension contributions; (ii) charitable giving; and (iii) the [relatively small] effect of the personal allowance and lower rate bands.

I take it you are these people's accountant?

I will join you. Don't fancy my chances of pursuading my DH to join me, although I will give it my best shot.

I don't know why I've involved myself in this debate, I don't even drink coffee!

And now I come to think of it, Starbucks don't even sell Diet Coke which I is what I do drink. What the hell, I'll boycott as well.

CinnabarRed thanks for the informative posts.

Why is the policy that means Starbucks don't pay tax in existence in the UK? What would happen if it was abolished?

It seems like a simple thing to close this loophole but I presume that would lead to a different can of worms.

Or perhaps the policy is simply to encourage employment to Britain?

I have absolutely no issue with people (whether small businesses or global groups) structuring their businesses in a way that makes sense commercially.

There is, however, what I tend to call 'tax planning of choices'. If you have a choice between two courses of action, both of which are valid commercially, then it's sensible to choose the one which carries the lower tax burden.

Small business owners paying themselves dividends rather than salary fits squarely into that bracket, IMO.

So, in fact, does putting your centralised brand management functions into a low-tax jurisdiction rather than a high-tax jurisdiction.

I do have a massive issue with people entering into contrived tax avoidance schemes with no commerical basis. Those schemes for rich people where you sign a piece of paper and suddenly have a tax loss but no economic loss? Close them down. Challenge them in the courts. Change the legislation. You'll get my full support on that.

what cinnebarRed says.

come on people. use your noggins.

I'm working off the information in the published accounts - profit per partner and average tax liability per partner.