UK companies are using subsidiaries to get around late payment law

Companies are taking advantage of a loophole to sidestep late payment laws in the UK, by not revealing the payment performance of their subsidiaries.

Since 2017, qualifying businesses in the country have been required to publish reports on payments to suppliers at least twice a year. Companies qualify for this rule if they meet two of three qualifying criteria: £36 million annual turnover, an £18 million total balance sheet or at least 250 staff.

But the companies do not need to reveal the payment activities of their subsidiaries that do not fall within the criteria.

Paul Uppal, the small business commissioner, has called out G4S, the outsourcing group, for persistently paying a supplier late. G4S paid the particular supplier through a subsidiary that does not meet the criteria for reporting.

Side-stepping prompt payment rules goes hand in hand with reducing their taxable income. Companies have been using subsidiaries to dodge legal requirements, avoid paying taxes, or to shift money around to locations with more favourable tax rates.

In the United States, companies are getting around US tariffs on Chinese products by getting their foreign subsidiaries, such as those in Canada, to buy products from China before shipping them to the US.

Coffee chain Starbucks was revealed in 2012 to have paid taxes of just £8.6 million in the UK in the past 14 years because it claimed its British subsidiary was losing money, even though it told its investors it was profitable. The practice continues unabated, as its UK-based European business paid just £18.3 million in tax last year but sent £348 million in dividends, which are not subject to tax in the UK, to its parent company in Seattle for brand license fees.

The coffee giant shifted money to the US in response to US president Trump's tax cuts on overseas earnings for companies. According to This Is Money, Starbucks uses the device of dividend payments to move profits around its various subsidiaries in Europe, and to eventually move the money back to the United States. Starbucks UK, which functions as the parent company of its European subsidiaries, received £116 million in dividends tax-free from subsidiaries on the continent last year.