Philip Hammond announces plans for a two per cent “digital services tax"

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

Outlining his budget, Chancellor of the Exchequer Philip Hammond 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 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 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 two per cent 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.

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.