Netflix received a €57,000 (£51,000) tax rebate from the UK government last year, despite making an estimated £700m from British subscribers bingeing on fare from The Crown to Stranger Things.
Netflix’s UK financial filing states the company reported revenues of €48m last year, and pre-tax profits of €2.3m, because the hundreds of millions of pounds it makes from British subscribers’ monthly fees are funnelled through separate accounts at its European headquarters in the Netherlands.
With more than 10 million Netflix UK subscribers by the end of last year – paying £5.99-£11.99 a month, with its £8.99 package by far the most popular – Netflix UK raked in more than £700m, after sales tax, from British streamers, according to data and analytics firm Ampere Analysis.
Revenue from British subscribers jumped 40% year-on-year in 2018, up from £500m in 2017 when the company received a €199,000 tax rebate from the UK government.
Netflix’s UK subscription revenues are estimated to rise by about a third again this year to just short of £1bn.
Netflix reports low revenue figures in the UK because, similarly to Google and Amazon, it positions the British operation as a service arm for its European headquarters where all subscriber revenues from across the continent are booked.
Netflix UK’s financial filing also revealed the company has committed hundreds of millions of pounds to rental deals to secure studio space over the next decade.
From this month Netflix will takeover Shepperton Studios, where movies ranging from Alien to Mary Poppins were made, as part of a 10-year deal to guarantee the space it needs to continue pumping out productions without delay.
The accounts revealed that after the end of last year, the filing period covered by the latest Companies House results, Netflix entered into multiple studio lease agreements worth £232m.
Netflix is chasing subscribers so is focused on investment in content rather than profits, on which corporation tax is paid, as it seeks to keep its lead over rivals including Disney, Apple and Amazon.
The company is spending $500m (£400m) making more than 50 films and TV shows in the UK this year including The Crown, Black Mirror and Sex Education and will employ 25,000 production workers. In addition, about a third of projects for Netflix’s European markets are shot in Britain.
High-quality TV shows made in the UK that cost more than £1m per episode to make, and films that pass a “cultural test”, are eligible for tax relief as part of government incentives to make sure Britain remains a competitive location for making productions.
Netflix said in its Companies House report: “Based on HMRC [Her Majesty’s Revenue and Customs] group relief rules, the company used a credit stemming from these Netflix UK production activities against its recorded profit.”
In total, HMRC paid out £595m in film tax relief and £246m in TV tax relief in the year to end of March 2019.
Netflix, which has a market value of $115bn, has been hiring rapidly. It has 170 staff, up from 29 last year , and
is looking for a new UK head office. The new staff are mostly working on content, which is run by Anne Mensah, who joined from Sky earlier this year.
It has emerged that Netflix is being investigated in Italy for alleged tax evasion, according to reports in the Italian press. Prosecutors argue that Netflix should pay taxes in Italy, despite not having an office there, because the digital infrastructure it uses to stream content to almost 1.5m subscribers counts as a physical presence. Italy has in the past successfully pursued technology companies Facebook, Apple and Google over tax issues.
Last month, Sharon White, the outgoing head of Ofcom, said it was her personal view that online platforms such as Netflix and YouTube should be made to help fund public service broadcasting in the UK. White said that this could be funding in kind, such as by giving prime promotional space to showcase public service programming or through a direct levy.
Reed Hastings, Netflix’s chief executive, has indicated the company would accept a tax but only if it was applied equally to all non-public service broadcasting pay-TV services operating in Britain, including Sky.