Side hustle tax: Amazon is paying less tax than Vinted sellers

If you didn’t already know this, prepare to be irritated. 

Bigger companies and their CEOs tend to be eligible for, and are often partial to, a tax loophole. In fact, at least 18 billionaires received benefits checks in 2020 because their tax returns placed them below the income cutoff, according to research from ProPublica.

In a landmark reform, a global minimum tax is expected to be implemented for the first time in history for companies who are active in EU Member States – meaning fewer ways for these companies to avoid their taxes altogether. This is expected to bring back $220 billion in annual tax revenue worldwide.

The 15% minimum rate requirement is a step in the right direction but it’s still not as much as the little person is required to pay. The HMRC reform that came into force on 1 January means side hustles are eligible for tax  and the average Vinted or Etsy seller will probably still be paying more at 20%.  

In this article, we’ll look at the ways in which the big fish have played the system and what the small fry need to do to keep their heads above water.

The new side hustle tax

How the super rich get lower taxes

Why do the affluent generally pay a lower percentage of their income and wealth in taxes than the average person? 

It seems unfair, but one explanation for why affluent individuals and companies pay lower taxes is their multiple income streams. For the wealthy this could come from stocks and shares, extensive joint ventures and partnerships and inheritances.

While the average person needs to use extra income they earn on everyday expenses such as energy bills and travel costs, especially as the cost of living crisis continues to bite, wealthier people have the luxury of using extraneous income to grow their businesses. Investment based on their perceived net worth rather than liquid assets is more likely.

Equally, many big name companies get by on the power of their reputation and or their leader’s personal brand, and use that for leverage for further success, in a way the average small business owner or side hustler may not be able to.

Three major firms paying less tax than Vinted sellers

We’re using Vinted as an example here, but really this applies to any small business or side hustle owner from Ebay sellers to Squarespace website owners. 

Amazon: deductions via UK tax credits

Amazon’s main UK division paid no corporation tax in 2023 for the second year in a row. The ecommerce giant benefited from the government’s “super-deduction” scheme for businesses that invest in infrastructure, which was introduced by Rishi Sunak when he was chancellor. 

This tax credit was put in place to help businesses during the pandemic, but it was just for a limited time and ended on 31 March 2023.

Amazon declared that £1.6 billion of its takings were investment in infrastructure for its warehouses in the UK. It is understood by the Fair Tax Foundation that as a result, Amazon’s main UK division paid no corporation tax (or came to some arrangement behind the scenes for an undisclosed amount).

Amazon also received a discount of £75 million in 2021. 

Starbucks: royalties and shadow companies

Despite 14 years in business and a Starbucks on every corner (with 735 outlets worldwide), it was reported that the conglomerate also paid no UK corporation tax in the 2011/12 tax year despite making £380m.

The subject of intense EU scrutiny, it seems the multinational java giant was able to write off most of its profit as ‘losses’. So how did Starbucks do it?

Starbucks owned other companies that were relatively unknown to the public.  These shadow or shell companies were legally separate entities. Starbucks’ incorporated their shell company in a country that had lower taxes than the UK and claimed the shell owned Starbucks’ intellectual rights, such as their trademarks and copyrights. 

The coffee giant then went on to claim that despite profits, it was actually ‘in debt’ and ‘paying interest’ on its intellectual property that it was “renting” from the shell company. Interestingly, the debt amount was the same as the amount owed in tax.

And thus, Starbucks tax expectations for the year ended at zero.

Meta: the CEO’s $1 salary

Meta (or more specifically its founder Mark Zuckerberg) is currently using a perfectly legal but dubious method of keeping his cash flow low on paper: he has assigned himself a yearly salary of literally only one dollar.

One-dollar salaries are “used in situations where an executive wishes to work without direct compensation, but for legal reasons must receive a payment above zero, so as to distinguish them from a volunteer.” 

The practice started in the 1940’s as an honourable gesture from billionaires who wanted to aid in war efforts, but weren’t allowed to do so without payment. Accepting a modest sum allowed continued support. However, this generosity has morphed over the years into a tax avoidance method. 

What actually makes Zuckerburg (and other CEOs like him) rich is that he takes stocks instead of a significant salary – and that seems to be working out in his favour, as it was last recorded that Zuckerburg’s net worth stands at £96.7 billion.

Conclusion

With a global minimum tax in the offing, the hope is to block some of the tax avoidance practices of the multinationals and level the tax rate playing field for all businesses. But this doesn’t mean the SME owner or side hustler can plead ignorance of recent UK tax reform. Sellers beware the Side Hustle tax!