Government to raise £400m a year by slapping 2% ‘digital services tax’ on tech titans

Written by Sam Trendall on 29 October 2018 in News
News

Chancellor’s Budget pledges that new 2% tariff will be targeted at global giants – not domestic start-ups

Credit: PA

The government plans to raise more than £400m a year by levying a 2% “digital services tax" on the revenue major internet companies gain through their UK users.

The measure was announced by chancellor of the exchequer Philip Hammond during Monday afternoon’s Budget. The chancellor told MPs that tax “rules have not kept pace with changing models”, and that the current set-up allows online firms that generate significant revenue in the UK to pay minimal tax in this country. 

Hammond (pictured above) said that “a global agreement is the best long-term solution” to this challenge. But, because “progress is slow” in reaching such an accord, the UK will independently launch its own national “digital services tax” in April 2020.

The chancellor said that it will apply to profitable firms that generate global annual sales of at least £500m via “certain digital platform models” including online marketplaces, search engines, and social-media platforms. 

The tax will be “narrowly targeted at UK revenues” gained through those models, he added. Companies will have to pay an annual sum equivalent to 2% of these sales – over a designated tax-free threshold of £25m in annual revenue. The chancellor added that the new tariff will not be an online sales tax levied on consumers.


Related content


Hammond claimed that the amount of UK tax currently paid by large providers of online platforms and services “is not sustainable or fair”. He added that the digital services tax will ultimately raise an estimated £400m each year, but pledged that it will not disadvantage UK tech start-ups

“It is only right that these global giants with significant operations in the UK pay their fair share,” Hammond said. 

Budget documents published this afternoon show that, after raising an initial £5m in 2019/20, in the 20201/21 year the tax is expected to generate revenues of £275m. This is then forecast to rise to £370m in 2021/22, then £400m and £440m, respectively, in the two subsequent years.

Lawrence Jones, chief executive of Manchester-based hosting company UKFast, welcomed the introduction of the digital services tax.

“It’s way beyond time for action on the pitiful amount of tax paid by the likes of Facebook, Amazon and Google, so I congratulate the chancellor on taking this first step,” he said. “If all UK businesses took advantage of the tax rules that apply to off-shore businesses, the country would collapse. It’s the tax-paying entrepreneur that props up this country and it’s time for these tech giants to pay their share.”

But Liam Byrne, shadow minister for digital, said that the digital services tax is “too little, too late”. When set against the multibillion-pound annual revenues of the “big five” tech companies – Apple, Google, Microsoft, Amazon, and Facebook – Byrne claimed that the new levy will raise a paltry amount.

About the author

Sam Trendall is editor of PublicTechnology

Share this page

Tags

Categories

CONTRIBUTIONS FROM READERS

Please login to post a comment or register for a free account.

Related Articles

Tech firms should join a coalition of the willing to support interoperability for police IT
30 August 2019

Jessica Russell of techUK believes increased collaboration between the emergency services and technology partners could deliver improved public-safety outcomes

Scotland unveils plan to become ‘5G leader’
28 August 2019

Technology could boost economy by £35bn, according to Scottish Government

Start-ups can show the way to public sector transformation
27 August 2019

Hanna Johnson of tech accelerator Public believes that transforming citizen services will require government to adopt new ways of buying and using technology

Related Sponsored Articles

The age of virtualisation
17 September 2019

After more than 20 years of stability, networks are going through a period of dramatic transformation. BT looks beyond the hype at the real benefits of virtualisation.

Digital Transformation: Connecting and protecting with perfect predictability
10 September 2019

How can you stay ahead in the fast-paced world of digital technology? BT describes how it's a matter of focus... 

How to stay ahead of a changing threat landscape
3 September 2019

The security threat landscape is confusing and changing rapidly – there’s so much out there, how do you understand where the true risks are? BT offers insight from their own experience

The cyber security skills challenge: Hiring for tomorrow
27 August 2019

Organisations must alter their approach to cyber security recruitment in order to combat the global shortage of security professionals, writes BT