UK Government to introduce digital services tax

The UK Government has announced plans to introduce a digital services tax targeting “established tech giants” which should raise over £400 million a year when it comes into force in April 2020.

During the Budget 2018 announcement at the House of Commons this afternoon, Chancellor Phillip Hammond said a global solution was needed to fairly tax large technology companies around the world, but an agreement was not happening quick enough.

“We cannot simply talk forever,” he said, as he revealed plans for the UK to tax large established technology companies which generate at least £500 million in revenue. According to the Budget 2018 document, search engines, social media platforms and online marketplaces will pay a 2% tax on their revenues. 

He was quick to point out this tax was not an online sales tax on goods bought online which he said would impact consumers. He also said the tax would not impact technology start-up companies. “We need to consult on the detail to make sure we get it right and the UK continues to be the best place in the world to start and scale up a digital business.”

Hammond said the UK Government would continue to take part in conversations to create a global solution and would replace the digital services tax with a world-wide tax if and when one is agreed upon.

Helen Coward, senior associate in corporate tax at law firm Charles Russell Speechlys, commented: “We now have some shape to the digital services tax – the so-called Amazon tax – being mooted by the government. While we will have to wait until April 2020 for the tax to take effect, the most important take-away is the intention for a targeted UK revenue tax, levied only on profitable companies that generate at least £500m in global revenue each year.”

During the last Budget before Brexit, Hammond also announced £675 million funding to help local councils make plans to improve high streets up and down the country. Meanwhile, the Chancellor promised cut business rates by a third for retailers with a rateable value of less than £51,000, resulting in a saving of up to £8,000 for up to 90% of all independent shops, pubs, restaurants and cafes.

Coward added: “As with diverted profits tax, this is clearly designed with specific targets in mind, and the predicted revenue from the measure is more modest than might have been expected. However, combined with business rates relief for SMEs, this should provide some relief for small high street businesses competing with the likes of Amazon.”