Budget 2018: Tech Giants Face Digital Services Tax

For years, it has seemed that the larger corporations haven’t played by the same tax rules as everyone else. Whilst small businesses, sole traders and the self-employed all pay what they owe, industry giants like Starbucks, Gap, Apple, Amazon and Facebook are avoiding paying corporation tax. All retailers are meant to pay a levy on their company’s profits, and at a rate of 19% for this tax year and next, it seems like a reasonable price to pay when your sales are in their millions. Those serving the tech industry seem to be the biggest culprits of tax avoidance but thanks to the Budget 2018, all this is set to change.

What’s new?

Chancellor Philip Hammond is planning to introduce a new digital services tax to ensure the technology giants that do so well on the UK business scene, pay tax on the sales that they make.

When will the tax be introduced?

The new digital services tax is set to be introduced to the UK in April 2020. The new digital services tax rate however may not materialise if the European Commission introduces its own digital levy at 3%.

Who will be affected?

The technology sector is particularly fast paced and sees a number of new and exciting businesses come to market. The new digital services tax however will not hamper the growth of ambitious tech start-ups, and instead only apply to established tech giants.

Organisations like Amazon and Facebook will be among those affected by the tax, just two of the big names that have been criticised for not paying enough tax in the UK. Larger companies operating as social media platforms, search engines and internet marketplaces will also be affected as Chancellor Philip Hammond states that “it is clearly not sustainable or fair that digital platform businesses can generate substantial value in the UK without paying tax here.”

How much will the tax be?

Talks are still ongoing about the exact details of the digital services tax but the government are proposing a 2% tax rate on the sales generated by these larger digital companies. At this proposed rate, it is forecasted that the new tax will make £275 million from 2019 to 2020, and a staggering £370 million during the following tax year, essential funds that are certain to come in handy as we adjust post-Brexit. If introduced, the new tax is set to generate yet more income for the UK government, reaching £400 million in 2021/22 and £440 million in 2022/23.

Find more of the latest Budget 2018 news on our blog roll or contact us direct to discuss your accounting and bookkeeping requirements.

Leave a Reply