Amazon could “entirely wipe out” the tax bill of its main UK service company by taking advantage of the chancellor’s £25bn “super-deduction” tax break, according to analysis by a tax fairness campaign group.
The super-deduction, announced by Rishi Sunak in the budget on Wednesday, will allow companies such as Amazon to offset 130% of investment spending on plant and machinery against profits for the next two years, starting next month. The chancellor explained that if a company spent £10m on new equipment, its taxable income would be reduced by £13m.
Amazon is spending on increasing its warehousing and logistics to cope with extra demand caused by Covid lockdowns, so it is likely to be able to put in a big claim. At the same time Amazon’s UK tax bill is very small because it officially collects a lot of its UK sales in Luxembourg.
TaxWatch said its examination of Amazon Services UK, the company that provides warehousing and delivery services for the firm’s UK operations, showed that it made profits of £102m in 2019 and had a tax liability of £6.3m. The company also spent £66.8m on plant and machinery, £80.4m on office equipment and £15.3m on computer equipment.
“If expensed at 130%, this would entirely wipe out the pre-tax profits of the company before any deductions of staff pay awards,” said George Turner, TaxWatch’s executive director. “With the budget announcement suggesting more cuts to government spending in years to come, it is highly questionable as to whether a tax cut for Amazon today is the best use of public money.
“Although there will undoubtedly be some companies that need the support, super-expensing is untargeted and will result in a substantial tax cut for companies that have done well from the pandemic,” Turner added. “It will also benefit companies which were planning to make capital expenditure regardless of the incentives available and potentially super-charge tax avoidance schemes which seek to exploit the new benefit.”
An Amazon spokesperson declined to comment except to point out that the company had invested more than £23bn since 2010 and that Amazon UK Services was just one part of its operations.
Construction firms, online retailers, distribution companies and manufacturers with big spending plans are also likely to be among the corporate winners from Sunak’s budget.
Analysts at the investment bank Jefferies said the change could boost spending on warehouses, potentially giving a tax break to online delivery companies, which have been among the biggest winners during the pandemic.
Next, the FTSE-100 fashion and homewares retailer, could reduce its tax payments if it rushes through planned capacity increases, Jefferies said. There was likely to be a “crowding effect” as companies pulled forward whatever spending they could before April 2023.
Royal Mail plans to spend £500m in the next few years in a shift towards more parcel deliveries. A portion of that investment, viewed as crucial to secure its future, could now be used to lower its tax bill.
The extra demand for commercial construction could also help building supplies companies including Kingspan, Polypipe, Travis Perkins and CRH, Jefferies said.
Housebuyers will pay zero stamp duty up to a property value of £500,000 until the end of June, and the government also said it would guarantee mortgages worth 95% of property values.
Stamp duty cuts have previously been found to directly increase housebuilders’ profits, while easier access to mortgages can help sustain prices.
The housebuilders Barratt Developments, Persimmon and Taylor Wimpey all stood to gain and their shares jumped 6%-7% as the measures were unveiled on Wednesday.
The super-deduction policy could also have important implications for the Vauxhall factory at Ellesmere Port. Carlos Tavares, the chief executive of Vauxhall’s owner, Stellantis, on Wednesday threatened to close the plant unless the government stepped in with financial aid. However, the super-deduction could provide Stellantis with a significant incentive to invest in UK production.
BT may now pay close to zero tax over the next two years owing to the scale of its investments in the UK’s broadband network, according to Polo Tang, an analyst at the investment bank UBS. The telecom company’s investments had been planned before the spring budget.