Rishi Sunak announced the UK’s new budget yesterday, but one announcement that flew under the radar was a 2% tax increase on digital services.
To be introduced on the 1st of April 2020, the government estimate it could be worth an additional £515m a year. historically, these large tech companies have paid very little tax in the UK, as their services and advertising platforms are offshore.
The new tax will apply to revenue earned in the UK and, to put this total into perspective, Facebook on their own made £1.6 billion in revenue last year from the UK. Businesses also need to be making more than £25m annually for the tax to come into effect. Brands such as Spotify and Monzo are unaffected by the change as they do not fall under a service that offers “search engines, social media services and online marketplaces”.
Although none of the major tech companies have spoken about the digital services impact yet, America often doesn’t tolerate taxes that target US businesses. The US Treasury Secretary has already promised to increase tariffs on UK-based cars if American companies are forced to pay this tax.
In the digital space, we are unlikely to see an instant impact from this tax increase and, with many saying that the tax will be short-lived, we may never see it come into action. For now, it’s business as usual, but if these tech giants start to see taxes impact their bottom line then we would expect to see these costs passed back to consumers.
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