Facebook's plans to overhaul how it reports revenue in the UK have been released from an internal message. The plans set out how Facebook will change where it reports certain types of revenue.
Currently, all of Facebook's revenue in the UK is routed through Ireland, where tax rates are lower; however, from April 2016 they will now record revenue from large advertisers in the UK, under Facebook UK. Advertisers such as Sainsbury's and Unilever will be part of those affected by the changes.
As part of this, Facebook will also pay a higher rate of corporation tax based upon the profits that it makes within the UK. This is currently set at 20%. The changes have been discussed with HMRC, the UK's tax authority; however, no formal agreement has been reached, according to sources.
In 2014, Facebook only paid £4,327 in UK tax, even though the UK is one of Facebook's largest markets other than the US. Whilst it is difficult to assess the amount of tax Facebook will need to pay during its next tax receipt in 2017, it is expected to be millions.
The changes from Facebook come ahead of a planned change to UK tax, where companies who divert profits outside of the UK will be forced to pay an additional 'diverted profits tax', which is set at 25%, 5% above the standard corporation tax of 20%.
Facebook currently employs 850 people in the UK whilst building a new headquarters in London.
The move by Facebook follows a similar move by Google, who has agreed to pay previous tax years to the UK. It is understood that these plans are not in relation to Google's plans. It is part of increasing global pressure on companies to pay the correct amount of tax for the countries in which they operate, rather than shifting profits overseas to places that have decreased tax rates.