Starbucks’s UK retail business paid no corporation tax for last year as it dived to a £35m loss after paying £40m in royalty and licence fees to its parent company.

The US-owned coffee chain said it made the payments despite sales declining 4% to £525.6m in the year to 29 September 2024, amid what it called a “challenging economic climate” and a consumer boycott linked to the Gaza conflict.

Sales fell even though it opened 100 new British stores during the period. The previous year it had made a £16.9m pre-tax profit.

The company’s trading was hit after it was named on a list of companies to boycott for its perceived support for, investment in, or links to, Israel. It has denied having any political agenda, saying: “We do not use our profits to fund any government or military operations anywhere.”

In spite of sliding sales, Starbucks’s UK retail arm paid out just over £40m in royalty and licence fees to its parent company – a similar figure to the prior year – tipping it into loss so that it paid no corporation tax.

It did hand HM Revenue and Customs almost £1m in deferred payments and adjustments related to prior years – including £455,000 of corporation tax. That came after it was previously criticised by fair tax campaigners for paying a “derisorily low” £7.2m in UK corporation tax for 2023.

Paul Monaghan, the chief executive of the Fair Tax Foundation, described the catch-up payments as “paltry”, adding that the latest Starbucks UK accounts reflected a long history of paying little or no corporate income tax with “surpluses invariably wiped out by substantial royalty payments to other parts of the business”.

Starbucks paid just £8.6m in the first 14 years after its 1998 debut in the UK, with none paid in several consecutive years, despite £3bn worth of sales during that time.

A Starbucks spokesperson said:“Starbucks is in full compliance with tax laws around the world, with an effective global tax rate of over 24% in 2024, which is in excess of the 15% minimum corporation tax discussed by the Organisation for Economic Co-operation and Development.”

The number of transactions at Starbucks’s 1,240 UK outlets, which include 378 run directly by the company as well as hundreds operated by franchisees, fell back as it raised prices by up to 4% on its drinks, amid inflation on coffee beans, cocoa and milk. The price of a latte or cappuccino hit £4.25 in March last year, with more elaborate drinks, such as a white chocolate mocha, reaching £5.40.

This month prices have risen again, with a cappuccino now costing £4.70 and a caramel macchiato priced at £6.10.

As the company fell into the red, Starbucks’s parent company pumped £50m into its UK division last year – via a revolving credit facility and a capital injection. Late last year the parent group committed to support its UK arm further financially if necessary and extended the payback period for a £20m loan, on which it is charging its UK business more than 5% interest, until December this year.

“Persistent inflation and higher interest rates left consumers with less disposable income, resulting in many adjusting usual spending habits; leading to a reduction in year-on-year transactions,” Starbucks said in accounts filed at Companies House this week.

“This was coupled with an increasingly competitive environment in key cities as new entrants to the market invested in new stores. Misperceptions about the brand relating to events in the Middle East also affected footfall in some locations in the first half of the year.”

The company, which was founded in Seattle in 1971 and is now the world’s biggest coffee shop operator, said there was also increasing competition for the best sites in city centres and drive-thrus, despite coffee shops coming under pressure from cost inflation and tightened consumer spending.

While Starbucks’s UK business has struggled, its cheaper rival Greggs has been rapidly expanding, while the British chain Caffè Nero increased sales globally by 15% in the year to May 2024 to almost £520m, including 10% growth in the UK. However, Caffè Nero also fell into the red, recording a £34.4m annual loss.

Starbucks has said it wants to open 80 more stores this year.