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Budget: Digital Services Tax cracks down on tech giants

Posted: Thursday, November 15, 2018

Author: Paul Reynolds

During the recent budget, the government has announced a new revenue-based tax on tech companies such as Apple, Google, Uber, Facebook and Amazon, which is expected to raise £400 million per year by 2022. The budget stated that the money raised from the Digital Services Tax (DST) will be used to fund AI, digital transformation and quantum computing.

What is interesting is to see that the UK Government has decided to ‘go it alone’ with this measure rather than wait for International co-ordinated action where talks are ongoing. It will be fascinating how this approach is viewed by the US, where many of these companies are based, particularly as the UK looks to secure a post-Brexit trade agreement with them.

The 2% tax on the revenues of search engines, social media platforms and profitable, online market places that generate more than £500 million per year, comes into effect from April 2020. The Chancellor, Philip Hammond, clarified that the levy would be on the companies themselves and would “apply to revenues from those activities that are linked to the participation of UK users”: it is not a sales tax on goods ordered online that would simply be passed onto consumers.

“Digital platforms delivering search engines, social media and online marketplaces have changed our lives, our society and our economy, mostly for the better. But they also pose a real challenge for the sustainability and fairness of our tax system; the rules have simply not kept pace with changing business models,” he said. The DST now faces consultation and we’ll be watching closely to see if and how this tax changes as we approach the implementation date.

Paul Reynolds, CTA AIIT is the Partner for VAT & Direct Taxes, Haslers Accountants

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