Starbucks says it will start paying more UK tax - but baristas face cutbacks

Starbucks has agreed to increase its rate of corporation tax contributions (Reuters)

Starbucks has bowed to the public outcry over its tax affairs and agreed to amend its operation, increasing its rate of corporation tax contributions, but 7,000 of the coffee giant's staff in the UK are now faced with cutbacks to their paid lunch breaks and sick leave.

The company has been using an arrangement which sees it transferring much of its UK profits to the Netherlands to legally reduce its taxable income. As a result, it has paid corporation tax only once in the fifteen years since it opened its first UK store.

But Starbucks has said that, while its UK subsidiary will continue to be charged the 4.7 per cent rate by its Dutch counterpart for use of the Starbucks brands, it is planning to stop using that deduction to reduce its UK tax bill.

The coffee chain paid no tax last year on the £400m it took in sales. If it decides to go ahead with the plan, it will be announced before the Chancellor George Osborne’s Autumn Statement to the House of Commons on Wednesday, the BBC reported.

Meanwhile, baristas at the firm's 750 stores have been told to sign employment terms that include the removal of paid 30-minute lunch breaks and paid sick leave on the first day of illness, The Guardian reported last night. Starbucks said the 30-minute break should not be paid for as it was "meant to be a break from work". A spokeswoman said changes were "unrelated" to the tax affairs

The Chancellor also promised Her Majesty’s Revenue and Customs an extra £77m in funding over two years to “go after” aggressive avoiders and evaders, branding the behaviour “unacceptable”. He said: “It is very important that people who try to avoid their taxes understand that we are going after them.

In a statement, Mr Osborne warned that the “minority” who avoid paying their fair share, sometimes by breaking the law” to expect a crackdown. He said: “The action... will help HMRC close in not only on those who seek to avoid or evade tax, but on the dubious ‘cowboy’ advisers who sell them the schemes and dodges they use to cheat the law-abiding majority.”

Chief Secretary to the Treasury Danny Alexander said: “In restoring the public finances, our first priority must be to tackle those who avoid or evade tax.

“It is simply not fair that at a time when most people are making a contribution to balancing the nation's books, there is a small minority of taxpayers who try to escape their responsibility.”