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snapchat spectacles snapbot londonPeople queuing to buy Snapchat Spectacles.Rob Price/BI

Snap’s British arm reported £26 million in revenue and £1.3 million in profit in the 15 months to December 2016, according to its first full-year financial filings in the UK. The company paid £360,000 in tax for the period.

The filing shows that the firm had 29 employees in the UK at the time, paid a collective £6.9 million, or an average of around £238,000 each. 

Snapchat makes most of its money from advertising, but the filing’s wording suggests its revenue figure for the UK last year doesn’t reflect how many ads it sold. That makes it difficult to assess how well the firm’s first year in the UK and Europe up against Facebook and Google has gone.

Instead, the 2016 revenue figure appears to be booked through other, unspecified Snap subsidiaries. Snap’s UK revenue reflects the British entity charging its costs back, plus a markup. 

This is a controversial setup known as “transfer pricing”, and is similar to how Amazon, Facebook, and Google report revenue in the UK. 

Snapchat UKSnap’s UK business doesn’t reflect how much money it makes from ads.Business Insider

Snapchat has not immediately respond to a request for clarification. But the company did announce in January this year — after the financial period reflected in its filing — that it would make the UK its international headquarters outside the US. It will also bill all ad revenue for the UK and some other markets through the UK entity. This essentially means Snap will drop the transfer pricing structure in the UK for 2017, and likely pay more tax.

According to the filing, the UK business also makes some money from Snapchat’s video-capturing Spectacles, which went on sale in late 2016. It reports into its US parent, Snap Inc., which is registered in Delaware.

Snap set up shop in London in late 2015, and appointed former Facebook executive Claire Valoti to head up its UK business.

Like its US parent, Snap’s UK business involves selling sponsored lenses, video ads, and other native ad formats to brands.

It’s up against the duopoly of Facebook and Google, which command the bulk of digital ad spend in the UK. Agency sources speaking to Business Insider suggest Snap has yet to make much of a dent. The CEO of the world’s biggest agency holding company, WPP’s Martin Sorrell, said his firm plans to spend $200 million (£150 million) on Snapchat ads in 2017. That’s still a tiny portion, compared to the $5 billion (£3.8 billion) it spent on Google and the $1.7 billion (£1.3 billion) it spent on Facebook last year.

Get the latest Snap stock price here.

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