Monday’s UK Budget included the announcement of a new UK digital services tax (DST). A consultation is proposed to help flesh out the detail but we were given some insight on Monday into key features of the proposed tax:

  • Who does it hit? The DST will apply to UK revenues from search engines, social media platforms and online marketplaces. Exactly what these categories will catch is still unclear, though some specific exclusions are envisaged (e.g. for online content, software, TV/broadcasting services and financial/payment services). They may be narrower than under EU proposals but there are still likely to be some pretty arbitrary (and distortive) dividing lines.
  • What’s the rate? The DST will apply at a 2% rate (lower than the EU’s proposed 3%).
  • When does it come in? The proposed start date is April 2020 (unless an international solution on digital taxation is reached first – see below).  The EU proposals are similar – 1 January 2020 is the current proposed start date.
  • When will it finish? The DST is described as an interim measure, pending international consensus on more far-reaching changes to the tax rules for digital businesses.  There’s also a review scheduled for 2025.
  • What about start-ups or loss-making groups? A dual threshold for the tax to apply of £25m relevant UK revenues and £500m global revenues is proposed as a means of excluding start-ups. A safe harbour is also proposed for loss-making groups and to permit reduced payments if groups have a low profit margin.

The UK’s DST has been well-trailed and follows EU proposals along similar lines (see here for further details). Compared to EU proposals, there has been some attempt to address the more obvious issues (e.g. for start-ups). However, for in-scope businesses, this will still be a blunt instrument, with a significant compliance burden. The impact on the UK's attractiveness as a place for tech businesses to set up or make investments is already being questioned.

And, although the UK says the DST is intended to act as a stop-gap, pessimists may also question whether it will end up being a permanent measure: so far, international consensus on more far-reaching reforms for the digital sector has been hard to reach.