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UK Digital Services Tax to come into effect in April 2020

The Chancellor has announced plans for a new Digital Services Tax to ensure tech giants operating in the UK “pay their fare share towards supporting our public services”.

The new tax will amount to two per cent of companies’ UK revenues, come into effect in April 2020 and be applied to profitable digital services businesses with a global turnover of at least £500m. It is expected to raise around £400m a year.

During his Budget speech on Monday (29 October), Philip Hammond said the tax “will be carefully designed to ensure it is established tech giants rather than our tech startups that shoulder the burden”. 

He added: “We will consult on the detail to make sure we get it right and to make sure the UK continues to be the best place in the world to start and scale up a tech business.”

The UK government has been leading attempts at the OECD and G20 to establish a new global tax system for the digital age, but Hammond said progress to date had been “painfully slow”.

“We will continue to work at the oecd and the G20 to seek a globally agreed solution and if one emerges, we will consider adopting it in place of the Digital Services Tax,” he said.

“But his step shows we are serious about this reform because it is only right that these global giants with profitable businesses in the UK pay their fare share towards supporting our public services.”

The news drew a mixed response from the tech sector, with some citing concerns about the message unilateral action would send to other tech hubs around the world.

Russ Shaw, the founder of Tech London Advocates, described the move as “the wrong approach”. “As much as a digital tax is a prudent step – especially in a time when new frameworks are required to a fit a digital economy – exposing the UK in a such a way would be detrimental to our economy and international stance,” he said.

“Brexit, with all its uncertainties, is bringing enough economic disruption as it is… Digital tax is a universal problem, and must be taken on in that manner. Any other approach makes Britain economically vulnerable, and risks damaging our tech sector in the long run.”

Julian David, the CEO of trade body TechUK, added that the approach “risks undermining the UK’s reputation as the best place to start a tech business or to invest”.

“The £500 million threshold the Chancellor proposed is low and risks capturing much smaller companies than anticipated. TechUK will engage with the Chancellor’s consultation but it is vital that policy is developed based on the reality of how businesses work, not on theoretical models of how they operate.”

But the Labour MP Darren Jones praised the move. In comments shared with NS Tech, the former tech lawyer said that while “the devil will be in the detail, […] I do applaud the Government for trying to get on with this issue of taxing global tech companies properly whilst still trying to secure global agreements with other countries.”