Starbucks pays corporation tax in UK for first time in five years

Starbucks says customers 'should not have to wait for us to become profitable' before corporation tax is paid

Starbucks, one of the companies exhorted by the prime minister to "wake up and smell the coffee" over tax, has handed over £5m to HM Revenue and Customs – its first payment in five years.

But the cash has only gone some way towards assuaging critics, one of whom complained that companies should not be able to "pick and choose" how much tax they wanted to pay.

The coffee shop chain said on Sunday it had made the contribution to please its customers and would be paying a second £5m instalment in the last half of the year despite claiming the business overall continued to make a financial loss in Britain.

"Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax," the company explained in a written statement.

"We listened to our customers in December and so decided to forgo certain deductions which would make us liable to pay £10m in corporation tax this year and a further £10m in 2014. We have now paid £5m and will pay the remaining £5m later this year," Starbucks added.

Starbucks has paid £5m corporation tax this year with a further £5m to come. It says it will pay another £10m in 2014  The move follows a barrage of criticism, including a comment from David Cameron at the World Economic Forum in Davos in January when he attacked low tax payers using the coffee reference – though not specifically naming Starbucks, Google or Amazon .

A spokeswoman for Starbucks declined to say how many customers it had lost following the high profile row which started with demonstrations outside some of the outlets by the campaign group, UK Uncut and ended with scorching criticism from parliament's public accounts committee.

Margaret Hodge, MP and chair of the PAC, said on Sunday she welcomed the first payment by Starbucks but added: "Companies should not be able to pick and choose how much tax they pay. We need a system which ensures that everybody pays a fair share of tax on the profits they gain from the economic activity they undertake."

The initial row followed revelations that Starbucks had paid £8.6m in corporation tax in its 15 years of trading in Britain, and nothing in the last three years despite overall sales of £3bn.

Amazon, which had book and CD sales in Britain of £3.35bn in 2011, only reported a "tax expense" of £1.8m while Google's British business paid £6m to the Treasury in 2011 on UK sales of £395m.

During a period of austerity, the issue has turned into a major political storm with the prime minister making tax avoidance one of the key issues at last week's G8 summit of leading economies at Lough Erne, Northern Ireland.

Campaigners claimed that various licensing and supply agreements with Dutch and Swiss arms of the Starbucks empire were being used to allow it to switch profits from Britain to other countries.

UK shops are able to buy their coffee from Switzerland at a 20% premium and yet the foreign business is charged corporation tax there of 12% compared with Britain's level of 25%.

Kris Engskov, managing director of Starbucks UK, responded last December by promising to pay £20m within two years.

Accounts filed by Starbucks UK with Companies House this week will show the British side of the business still not formally profitable. Starbucks is expected to close up to 30 of its shops around the country this year. A similar number were shut last year amid tough competition from Costa and other brands.

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Deloitte appoints official criticised over 'sweetheart' tax deals

Dave Hartnett has been hired by accountancy firm which faced tax avoidance allegations during his time as head of HMRC

The row over tax avoidance by multinational companies escalated on Monday night as it emerged that Dave Hartnett, until 10 months ago the country's leading tax official, has been appointed to a new position with a leading accountancy firm mired in the controversy.

Hartnett will work one day a week with Deloitte, the auditors for Vodafone and Starbucks, which faced tax avoidance allegations during his time as head of HM Revenue & Customs.

The appointment was approved by David Cameron and the advisory committee on business appointments last week, although Deloitte did not announce the high-profile signing.

The appointments committee added a list of six caveats to its approval letter, designed to ensure Hartnett does not share any information about how to avoid UK tax and to guard against potential conflicts of interest.

But tax campaigners and MPs criticised the appointment and suggested that although Hartnett cannot advise UK organisations, he could use his knowledge to strengthen the positions of offshore tax havens.

Hartnett, 62, will advise overseas governments on how to implement "effective tax regimes".

An HMRC lifer until his retirement, Hartnett was heavily criticised for agreeing a number of "sweetheart deals" with major corporations including Vodafone and Goldman Sachs in the UK.

Earlier this month, a judge found that a deal brokered by Hartnett with Goldman Sachs, which saved the US bank £20m in interest payments, was lawful but "not a glorious episode in the history of the revenue".

Mr Justice Nicol said the deal had been agreed by Hartnett to save the chancellor, George Osborne, from potential embarrassment, and criticised the fact that it had been done behind closed doors and without proper approval or reference to lawyers. Hartnett was said to have personally negotiated a deal with Vodafone, which saw the telecoms business pay £1.25bn of an alleged £6bn tax bill. Vodafone disputes this figure.

 A spokesman for Deloitte said: "Dave Hartnett will work as a consultant to Deloitte advising foreign governments and tax administrations, primarily in the developing world. He has significant experience in advising such countries on the development of effective tax regimes, necessary to ensure their continued economic growth. He will not work with UK companies or with HMRC."

The new job comes four months after Hartnett was appointed as an adviser to banking group HSBC on financial risks and crime. The bank was fined $1.9bn (£1.3bn) by US authorities last year for laundering Mexican drug money.

Confirming his appointment, the advisory committee on appointments said it was noted that "whilst working in government, Mr Hartnett did have official dealings with Deloitte, and he also dealt with a wide range of major accountancy and law firms during his time in HMRC and the Inland Revenue before that".

Labour MP John Mann, who sits on the Treasury select committee and questioned Hartnett on several occasions, criticised the appointment. "It shouldn't be allowed. It is all-too-cosy relationships that is the problem at the heart of HMRC.

"It would be a strange government that would employ him considering the problems we've had trying to get our tax system in order, especially when he personally negotiated the deal with Vodafone.

"It gives the wrong message to a group of staff [at HMRC] who are already some of the most demoralised workers in the country."

Deloitte and the other "big four" accountancy firms – KPMG, PricewaterhouseCoopers and Ernst & Young – have all been criticised for using knowledge gained from staff seconded to the Treasury to help wealthy clients avoid paying UK taxes. Richard Murphy, of Tax Research UK, called the latest switch from the state to the private sector "the creeping control of the state by the big business elite".

He said: "We've had people who are very senior who have moved over to big business, but never the very top. He was meant to be the taxman's taxman."

He suggested that Hartnett may be called upon "to advise on tax avoidance in offshore locations".

The prime minister accepted the committee's recommendation that Hartnett be allowed to join Deloitte, but set a series of rules on what he can and cannot advise upon while working for Deloitte.

The rules laid down state that Hartnett should "not draw on any privileged information" from his time at HMRC. He must also not advise "any taxpayer that he has been involved with whilst at HMRC" and must ensure he "has no involvement in discussions with other fiscal authorities of UK's confidential tax policy".

He is also not allowed to personally lobby the government for at least a year.

Hartnett had a close relationship with Deloitte during his time at HMRC and met senior British partner David Cruickshank 48 times between 2007 and 2011, including meetings about Vodafone, one of Deloitte's clients.

Deloitte also signed off the accounts for coffee company Starbucks. The chain faced a backlash among customers last year when it emerged that it had, quite legitimately, paid no corporation tax in the past three years by channelling its revenues through Luxembourg and Switzerland.

Murray Worthy, a spokesman for UK Uncut, who recently brought an unsuccessful court case against HMRC for the sweetheart deal with Goldman Sachs, said Hartnett had been "welcomed with open arms by the people he was supposed to have been regulating".

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