Thursday, April 20, 2017

Revenue is not profit.

I get amazed at the number of people who confuse revenue with profits.

Not too long ago the news reported that Google begin to pay £36.4 million in tax for the last year, on revenue of around a billion pounds. The Usual Suspects and chattering classes were aghast. Why that is a tax rate of only 3.6%. I wish I could pay that little tax...

Except that is cobblers. 

The revenue was £1 billion, on which VAT would have been charged and payed, wages paid, rent, heat, light and business rates. All those are fairly fixed costs. They will also have paid a hefty whack in tax, both PAYE, national insurance as well as employers national insurance. Add to that they will charge there customers VAT (though as most of their customers will be VAT registered it will be claimed back). After all these expenses they made a profit of £148 million. Frankly that's very good on a revenue of £1 billion and they should be proud. It's that they paid tax on, specifically £29.8 million, the balance made up of deferred tax from previous years.

Obviously if Google paid no wages, rent business rates etc, then their profit would be higher, and they would pay more corporation tax, but then there would be no tax paid on wages or business rates.

So next time you see someone saying oh look they had a revenue of X but only paid Y in tax, you know they are an utter moron.