Budget 2018: Digital services tax - Hammond takes on tech giants

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In one of the most radical and extensive sections of his 73min Budget speech, Chancellor Philip Hammond promised a new digital services tax (DST) that would raise £400m from the likes of Facebook, Amazon and Google from 2020 on.

Introducing a new kind of tax is a measure of some note, but there was little substance to flesh out the proposal beyond the criteria set out in his speech:

  • It will be narrowly targeted on the UK-generated revenues of specific digital platform business models [search engines, social media platforms and online marketplaces] that generate at least £500m a year in global revenue.
  • Limits will be devised to ensure that tech giants rather than start-ups shoulder the burden.
  • Online sales will not be taxed
  • The tax will come into effect in April 2020 and once it beds it, it will be expected to raise more than £400m a year.

Further details can be found in section section 4.8 of the Budget Red Book. The specifics of the DST will take shape in consultations between now and April 2020 – which effectively means that the Chancellor and his civil servants will be making up policy as they go along.

Hammond moved on from the digital services tax to a set of measures to support the UK’s high street retailers, reinforcing suggestions from commentators on AccountingWEB’s Live Budget panel that we were seeing another instance of gesture taxation.

“UK revenues of specific tech giants. Not online sales tax. Companies with £500m revenues globally. Great avoidance opportunities… sounds like a sop to the media rather than a serious tax,” commented Philip Fisher.

And the sums likely to raised are dwarfed by the amounts collected annually in business rates, noted retail lobbyists.

International collaboration

The Chancellor pre-empted some criticism in his speech by acknowledging that he was charting a solo course for the UK as international negotiations around digital tax were continuing. Progress on that front was not fast enough, however.

The Chancellor promised to collaborate with the OECD and G20 on a globally agreed solution, but was not prepared to wait around until that happens.

“If one emerges, we will consider adopting it in place of the UK Digital Services Tax. But this step shows that we are serious about this reform,” Hammond said. “It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services.”

Afterwards, experts in the field warned that the unilateral approach to digital tax risked retaliation from other countries – particularly the USA, where most of the targeted organisations are based.

“The proposed digital services tax is a blunt instrument that is likely to over-tax companies (who have relatively small profit margins) on UK created value and under-tax others,” commented Glyn Fullelove, chair of CIOT’s technical committee.

“The expected yield of £400m (from a tax rate of 2%) suggests that the Chancellor is targeting £20 billion of revenues attributable to UK users of digital platforms. We suspect that identifying and allocating these revenues will be problematic and may lead to companies disputing how much tax is due.”

“The best outcome would be that the announcement today spurs the international community to find a globally agreed solution to taxing digital multinational companies by 2020 so that this UK digital services tax is never actually introduced.” 

Visit our at a glance guide for a summary of all the major measures from Budget 2018.

About John Stokdyk

John Stokdyk, AccountingWEB head of insight

AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.

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01st Nov 2018 12:24

"Little substance" is spot on. Fiscal Phil's way of dealing with this is to say "we will see what they want to pay"

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