UK to introduce digital services tax

The UK Government will introduce a digital services tax based on a two per cent levy on sales for certain digital businesses, chancellor Rishi Sunak has confirmed.

The tax, which will be in place for 1 April, will apply to the revenues of search engines, social media services and online marketplaces which derive value from UK users.

The Treasury said the measure will ensure that large multinational businesses make a fair contribution to supporting vital public services.

The proposal has previously faced criticism from US policy-makers, with treasury secretary Steve Mnuchin warning American authorities would respond with retaliatory tariffs on British companies.

France delayed plans for a similar levy, while the US also warned the UK that the move could scupper chances of a transatlantic trade deal.

But with previous forecasts suggesting it could raise £500m a year, Sunak vowed to press on with the tax, saying: “This will ensure the amount of tax paid in the UK reflects the value these businesses derive from their interactions with, and the contributions of, an active user base.”

Chris Sanger, EY’s head of tax policy, said: “The Chancellor chose to proceed with the new Digital Services Tax that was invented under his predecessor’s predecessor. “There has been much speculation that the Chancellor might defer the introduction, having seen the debate between the US and France. Following the threat of tariffs, the French government agreed to defer collection DST on this year’s revenue until 2021.

“Despite the government’s own scorecard showing the advancing of the liability due to the way that the government accounts for tax, the chancellor has followed his French counterpart by deferring payment into 2021. More widely, despite the changes since the tax was introduced, it still seems that the Exchequer believes it will raise £440m per year.”