Caffe Nero to create jobs, but fail to pay corporation tax

Caffe Nero, the third largest coffee shop chain in Great Britain, is currently experiencing just how quickly the winds of fortunes can change.

On Saturday the broadsheets were reporting that the Italian style outlet would be creating 1,700 jobs as plans to significantly expand their homeland operations were laid out.

Then, earlier today, it has come to light that they were the latest entity to be pilloried for not paying any corporation tax.

It’s been a “good news, bad news” weekend – with a fair bit of ‘missed news’ thrown in for good measure.

The good

We have known about Caffe Nero’s US expansion for a while – they are opening up their first stateside shop in Boston in the not too distant future – and the international market is a prime opportunity for growth, but news on the British front had been quiet. That was until founder Gerry Ford revealed to The Telegraph that they would be creating 1,700 jobs.

“What you’ve seen is Starbucks tail off in its openings and fixing its portfolio,” Ford said before adding; “but we’re continuing to march at our own pace.”

With 566 outlets in operation at the moment, Caffe Nero are lagging behind the likes of Costa and Starbucks, but the increase in stores would see them significantly close the gap and narrow the market share.

Ford also offered some bullish words for his attempted conquest of the North American scene: “There’s a place for us…I think the top end of the US market has not been served by a strong brand.”

It’s certainly ambitious, but it is a plan that may well work. The perceived competition of Starbucks and Dunkin’ Donuts have a strong ‘fast-food’ element to their business, Ford suggests Caffe Nero is going to bypass that aspect and offer something that is distinctly European.

They have a fighting chance, especially when the company started out in 1997 with just one store in South Kensington. History could be transposed across the Atlantic.

The bad

In the same interview, Ford answers honestly when asked about Caffe Nero’s tax payments.

“We have not been [paying corporation tax] because of the interest that we pay to the UK banks.”

With its holding company based in Luxembourg, on the surface it seems that it is another Starbucks, Google or Amazon all over again.

Other outlets have, unsurprisingly, picked up on the news and the chain has been on the receiving end of indignant messages.

John Mann, a member of the Treasury Select Committee, called it a case of unfair ‘competition’.

“If other cafes around the country including those owned by families are paying proper British taxes, why shouldn’t this company? I think people will be shocked to see Caffe Nero is free-loading,” the Labour MP for Bassetlaw is quoted as saying.

Comments have flooded in with the phrases ‘boycott’ and ‘absolutely disgusting’, being fairly typical responses on social media to the story.

The missed

There is no suspicion that the company is doing anything illegal, or going to a particularly convoluted length to avoid paying tax in the way Starbucks did.

Gerry Ford stated – and something missed by people quick to draw ire – is that the company has “a relatively high interest rate that [they're] paying to UK banks.” This, he says, wipes out corporate profit.

“But,” Ford is keen to point out, “in VAT we paid £21m last year. In business rates we paid £13m and in PAYE and National Insurance we paid £13m.”

Another key point is that certain taxes can be offset by debt and Caffe Nero’s debts are purported in the region of £250m, the result of taking the business private. So it’s not all as it seems.

But it is a headline that grabs attention and will cause public outrage. Not ‘evil’, as Margaret Hodge branded Google’s actions last year, but perhaps calculated, and certainly not elaborate.

Time will ultimately tell which way this story is remembered but for the time being the headlines will be very familiar: ‘Coffee shop dodges tax!’

picture used under wikicommons