For the first time, the government has instituted a Digital Services Tax on the “revenues of search engines, social media platforms and online marketplaces, reflecting the value they derive from UK users.”
The budget, which was delivered by chancellor Philip Hammond on 29 October, details that the tax only applies to businesses with annual revenues of £500 million or more, and will come into effect in April 2020.
The measure comes in response to growing backlash against US-headquartered tech giants that pay disproportionately small amounts of tax on UK profits.
The Digital Services Tax applies to “to revenues from those activities that are linked to the participation of UK users, subject to a £25 million per annum allowance.”
“The UK has been leading attempts to deliver international corporate tax reform for the digital age. A new global agreement is the best long-term solution, but progress is painfully slow. We cannot simply talk forever,” said Hammond.
“It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services.”
Hammond added that the tax will be “carefully designed” to ensure it targets established tech giants – rather than tech start-ups.
As such, the tax includes a “safe harbor provision” that exempts loss-makers and reduces the rate of tax on businesses with “very low profit margins”.
The tax is projected to yield £5 million in 2019/20, but will steadily increase to around £440 million in 2023/24.
Hammond noted that the government will “continue to work at the [Organization for Economic Cooperation and Development] and G20 to seek a globally agreed solution, and if one emerges, we will consider adopting it in place of the UK Digital Services Tax.”
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