Sophos Explains Its Super-Low Corporation Tax Bill… Why Can’t Symantec?

The UK tax machine and corporate technology behemoths have become intertwined of late, in a pernicious spiral leaving giants like Amazon and Google forced to explain their practices to curmudgeonly MPs. They both make a substantial amount of money in this country, and should therefore pay taxes, many argue. The defendants will simply say: “We’re innocent. No laws have been broken here.”

With the spotlight firmly on IT businesses, and as a security journalist at heart, I decided to look at the accounts of some of the most prominent industry players to see how much tax they were paying. Two companies stood out: Sophos and Symantec. It appeared that they had actually received more in tax credits in the last three years than they had paid in corporation tax. That’s despite the accounts indicating they made hundreds of millions in revenue here.

Time to get angry?

Now, let’s not get too hasty in upbraiding those two security big hitters. There are many reasons why a company would have paid next to no UK corporate tax – many of them perfectly legitimate, some of them less so.

Sophos responded to my queries and, to my mind, has justified itself adequately. But Symantec hasn’t come back to me with any response as yet. That doesn’t seem like a positive move given the negative light being cast on technology companies right now.

Let’s look at Sophos first. According to accounts I’ve seen, in 2012 the company made £235,639,107 in revenue. Pre-tax profit, however, was down to a loss of £10,406,939 and it received a tax credit of £7,397,136. The year before the same figures were £197,846,640 in turnover, £14,900,039 in pre-tax profit, and the company paid £3,167,806 in tax. In 2010, Sophos reported £171,244,077 in turnover, a loss of £24,022,597 in pre-tax profit and a tax credit of £5,502,976.

Sophos’ explanation for this is that it has spent so much on research and development, acquisitions and its own staff that it has made losses, and therefore paid very little corporate tax.

“It is right that we don’t make a great deal of statutory profit and that’s because we invest a lot in our people, we invest a lot in our products, which we think is the right thing to do in the long term,” CFO of Sophos, Nick Bray, tells me.

As for the tax credits, they appear to be related to acquisitions. Companies can charge back amortisation (the depreciation in value of an asset – potentially from an acquisition) back to accounts and therefore benefit from tax deductions, Bray explains. He says the charge on amortisation has been “significant”.

Claiming spend on research and development is also a good way to get tax deductions and Sophos is likely to be benefitting from that. This is actually a hugely positive thing, in my opinion. HMRC recognises the risks of R&D (some technologies fail, remember) and the potentially huge benefits to the economy. It offers credits where companies can prove substantial investment.

However – and I’m certainly not suggesting Sophos is doing this – the cost of the R&D can be inflated to increase overall costs and therefore reduce profits and tax. Bray couldn’t supply me with an exact figure, but said of Sophos’ 1650 global employees, approximately 550 are involved in research and development, and many of those are based in the UK.

Intellectual property can also be claimed for tax relief purposes. Again, Bray says the company holds much of Sophos’ IP in the UK, but did not say whether or not that is used to gain some money back from the government.

Outside of how Sophos has cut its corporate tax bill, Bray also notes the other areas where the UK-headquartered company does pay tax, including through its employees’ own income tax. The company claims to spend $200 million a year on its staff, much of which goes on UK workers.

It also delivers tax through VAT, being a UK consumer. And it pays tax on the buildings it owns here. Bray says the company is proud of how it acts: “We are not paying a huge amount of UK tax, because of all the costs we go through. We bring profits back to the UK, we are certainly doing all the things we should be as a good UK corporate system.

“We are pretty proud of the role we play on behalf of the UK, in terms of employing people, doing the right thing and paying our fair share of taxes.”

Let’s talk Symantec

So Sophos has explained itself rather well. Symantec hasn’t. Looking at 2011 accounts for Symantec UK ltd, which has headquarters in Berkshire (so at least it isn’t running out of a Luxembourg office or some other tax haven), the company made £160,386,000 in revenue. Its pre-tax profit was down at £3,181,000, and it received a tax credit of £2,231,000.

For the previous year, it recorded £154,458,000 in revenue, pre-tax profit of £3,028,000 and a tax bill of £487,000. In 2009, revenue was £183,102,000, pre-tax profit at 7,033,000 and a tax bill of £792,000.

Yet despite repeated requests for comment on why its profits are so low here, and how it has apparently received more in credits than it has paid in tax, I’ve received nothing. No confirmation or denial of those figures, although it appears they are indeed genuine. Nada.

In not coming forward to talk, Symantec may be doing itself a disservice. When one of its chief rivals can be ostensibly open about what it is doing, why can’t the biggest security company in the world do the same?

As the UK public becomes increasingly irate at the likes of Starbucks getting away with paying very little despite its massive profits here, the government is rightly looking to close off tax loopholes . It is keen to prevent companies from finding clever, legal ways to not pay tax in this country.

It is also demanding greater transparency. In return it is cutting corporation tax and sagaciously making the UK a more attractive place to do business. It is about time we started seeing more of that transparency from big boys, like Symantec, who continue to make a tonne of money on these shores.

A big thanks to award-winning freelance journalist Tom Banham (Twitter handle @BanhamTom) for his help on this article.

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