UK seeks to raise £500m from digital services tax

March 9, 2020

The UK is hoping to raise £500m through a tax on digital services despite opposition from the US government and some British businesses.

According to the Financial Times, the new levy is expected to include a 2% tax on revenues generated by UK users of large social networks, search engines and online marketplaces.

The digital tax, focused on large US tech companies such as Facebook, Amazon and Google, is intended to claim back millions of pounds businesses avoid paying to the state by diverting profits through “low-tax” countries like Ireland.

The tax, which will come into effect in April, will be included by the Chancellor in Wednesday’s Budget, reports the FT. 

The measure applies to companies with an annual global revenue of more than £500m and who generate in excess of £25m of UK sales from “relevant activities”. 

The aim is to ensure that online transactions, such as advertising, are taxed where users of these social networks and search engines live.

Just Eat CFO, Paul Harrison, described the measure as “pure double taxation”.

Some UK tech companies have said that they could also be hit by the digital services tax as EU competition rules, which apply during the Brexit transition period, mean British business cannot offset the tax against other levies such as corporation tax. 

The US government has already threatened to impose tariffs on the UK if it goes ahead with the digital services tax.