Tax agency raised £83m more than expected during 2021 fiscal year

Credit: Lucia Grzeskiewicz/Pixabay

The likes of Google, Amazon and Facebook are now likely to be paying “significantly more tax” in the UK as a result of the Digital Services Tax.

The levy – which was first unveiled as part of the budget in October 2018 – requires firms to pay a 2% tax on all revenues in excess of £25m a year and derived from UK users of social networks, online marketplaces, and search engines. 

Newly published figures from the National Audit Office reveal that, during 2020/21 – its first full year in effect – HM Revenue and Customs received £358m in Digital Services Tax (DST) payments. This figure is £83m higher than the tax department’s original estimate of £275m.

“The initial forecast assumed that business groups would seek to minimise their DST liability, but [HMRC] had not observed such behaviour,” the NAO report said.

A total of 18 companies paid DST during the year, 14 of which paid more than HMRC had expected, including six that the department had not initially believed would be liable for the tax. The digital services levy represented about 7% of the overall total of £4.8bn in taxes paid during the year by the 18 firms.

The biggest five contributors of DST revenue accounted for £324m in payments – a little over 90% of the total paid in 2020/21.

Related content

• Online Safety Bill faces further delay
• Users will have more control over personal data under new regulatory regime, minister pledges
• Big Tech politics, blurred lines, and power: why the government must take back control

None of the companies who were liable for DST were named by the NAO but the tax has been widely seen as an effort to increase the contributions to the exchequer made by the online services and IT giants, including the so-called big five tech firms: Apple; Google; Microsoft; Amazon; and Facebook.

The NAO found that: “The introduction of the Digital Services Tax has meant that most groups affected are paying significantly more tax as a result. Of the 18 groups paying DST, 13 paid more DST than Corporation Tax in 2020-21. Of these, nine paid more than twice as much DST as Corporation Tax. A further three groups paid no Corporation Tax. At the other end of the spectrum, three groups paid mostly Corporation Tax, with DST representing less than 10% of their Corporation Tax bill.”

HMRC spent £6.3m implementing DST – £1.5m less than had been budgeted. An internal review has found that the department “had successfully delivered its key criteria”. 

NAO head Gareth Davies said: “The Digital Services Tax has succeeded in raising more tax from some big digital companies and has brought in more money than forecast in its first year. However, HMRC could still face challenges enforcing compliance, especially among groups without a physical presence in the UK. It should ensure that big digital companies operating beyond the UK’s borders are aware of the tax and comply with it.”

The DST was intended as a temporary measure and is due to be retired once a new global framework for taxing providers of digital services – developed by Organisation for Economic Co-operation and Development -begins to be introduced from 2024.