November 5, 2018

On 29 October 2018 the Chancellor of the Exchequer, Philip Hammond, presented his 2018 Budget to Parliament.

Included within the Budget was the Government’s announcement that it is introducing a 2% digital services tax to ensure that “large, established, digital services companies pay their fair share”.  The 2% tax will be levied against the revenues of search engines, social media platforms and online marketplaces, “reflecting the value they derive from UK users”.

The new tax will apply from April 2020.  The aim behind the tax is, the Government says, to “ensure that the amount of tax paid in the UK is reflective of the value they derive from their UK users”.  The Chancellor said that the tax will:

• apply to revenues generated from the provision of the following business activities: search engines, social media platforms and online marketplaces;
• apply to revenues from those activities that are linked to the participation of UK users, subject to a £25 million per annum allowance;
• only apply to groups that generate global revenues from in-scope business activities in excess of £500 million per annum; and
• include a safe harbour provision that exempts loss-makers and reduces the effective rate of tax on businesses with very low profit margins.

The Chancellor also said that the Government “remains committed to G20 and OECD discussions on potential future reforms to the international corporate tax framework”.  Therefore, it will only apply the digital services tax “until an appropriate long-term solution is in place”.  The Government will consult on the detailed design of the new tax and legislate in the Finance Bill 2019-20.  To read the Budget documents in full, click here.