Netflix paid just £4m in UK corporation tax in 2020 despite having the best year in its history, as a pandemic-fuelled viewing boom generated an estimated £1.15bn from its British subscribers.
The streaming company, whose tax bill has risen 33% year-on-year to the highest level since it launched in the UK in 2012, added a record 36.6 million new subscribers globally, taking its total past 200 million. In the UK, it added about 2 million subscribers, making its British customer base an estimated 13 million people.
Netflix UK reported a 43% increase in revenues to £172m, with pre-tax profits increasing by 50% to £19.4m across the three businesses the US company has registered at Companies House. However, the £1bn-plus Netflix makes annually from the monthly fees paid by its British fans is funnelled through separate accounts at its European headquarters in the Netherlands.
Netflix is working to abandon the practice, which is common among big tech companies, but criticised as a tactic to shift bills to low-tax jurisdictions. In January, it started declaring British income to the UK tax authorities.
The impact of this decision, which could mean the company pays more UK corporation tax, will not be clear until Netflix’s financial performance for this year is made public in 2022.
However, the tax bill is paid on profits, not revenues, and the company continues to reinvest at least half the revenues it makes in the UK into its ballooning budget for British-made original productions. Netflix UK spends about $1bn (£730m) annually on UK-made productions, including Bridgerton, The Crown, Top Boy, Sex Education and the upcoming Aardman Animation film Robin Robin.
A spokesperson said: “Despite an incredibly tough year for the creative industry, the UK remains the most important producer of high-end film and TV in Europe.”
The accounts also show the scale of the expansion of the company’s UK operation, its largest production hub outside the US, with employee numbers increasing from 29 in 2017 to 274 at the end of last year. By the end of 2021 Netflix expects to employ about 400 staff in the UK.
Employees at its biggest operation, Netflix Services UK, received average pay of €239,000 (about £203,000) last year, down on €287,000 in 2019, as the big salaries paid to relatively few top executives are countered by the growing workforce.
Last month, the company paid hundreds of millions of dollars to buy rights to the works of Roald Dahl, author of classics such as the BFG and James and the Giant Peach, in its biggest content deal to date.
Netflix has expanded its production capability in the UK, its biggest base outside the US, recently signing a long-term lease at Longcross Studios, used by productions such as Skyfall, War Horse and Call the Midwife. It already has a long-term deal at Shepperton Studios, home to films from Alien to Mary Poppins Returns. Both studios are in Surrey.
The decision to declare income in the UK also means Netflix UK will have to start paying a service charge to the Dutch headquarters. In 2020, Netflix UK Services received a fee of almost €100m for operating as the service arm for its European headquarters.
The spokesperson said: “We are committed to playing an active role in the industry’s full recovery. As well as paying all taxes required, in the year ahead we will continue to invest in production facilities and increase our content budget to include over 60 UK productions. And through our new Grow Creative UK initiative we will focus on up-skilling crew, training emerging British talent and spreading opportunity across the whole of the UK.”
Netflix has promised £1.2m to the initiative, which aims to develop the careers of 1,000 people in the film and TV industry.