Technology giants will be forced to pay tax on the sales they generate in the UK, under new plans announced in the Budget.
UK chancellor Philip Hammond has used this week’s budget to take aim at tech giants who he says aren’t paying their fair share of tax in the nation and is promising to introduce a digital sales levy in 2020 to rectify this.
He said “established tech giants” will be targeted rather than start-ups.
He also promised £160m for counter-terror policing and £1bn for defence – which will cover cash for cyber security – as well as various measures to boost productivity, which Hammond said would allow the UK to be “one of the great winners” of the technological revolution.
However, Hammond said that, as the UK evolves for a digital age, “so too must our tax system to ensure it remains fair and robust” – with the key announcement being on digital tax for tech giants.
“There is one standout example of where the rules of the game must evolve now if they are to keep up with the emerging digital economy,” Hammond said: digital platforms delivering search engines, social media and online marketplaces.
Tax rules have “simply not kept pace with changing business models”, he said, adding that it as “clearly not sustainable or fair that digital platforms businesses can generate substantial value in the UK without paying tax here”.
As such, the UK will, in April 2020, introduce a digital services tax on search engines, social media platforms and online marketplaces.
Although the chancellor didn’t name Facebook, Google or Amazon, he did say he was “already looking forward to my call from the former leader of the Liberal Democrats” – Nick Clegg was recently appointed head of global affairs at the Zuckerborg.
Both the 36-member OECD and the European Commission have been trying to reach a consensus on imposing a digital tax on social media platforms, internet marketplaces and search engines.
However, Mr Hammond said that progress was “painfully slow”. He said: “It is clearly not sustainable or fair that digital platform businesses can generate substantial value in the UK without paying tax here.”
Industry reacts
A number of UK business leaders reacted to the 2018 Autumn Budget, and their comments are shown below:
Ritam Gandhi – Founder and Director of Studio Graphene – a design and development studio specialising in IoT technologies and app development
“The focus on technology was promising to see, including a £1.6 billion commitment of new investments to support the modern industrial strategy. However, there was no further update on the Chancellor’s proposed reforms to the EIS fund structure to encourage investment into early-stage firms deemed highly innovative – something touted in the Spring Statement.
“The Government is right to promote reforms that benefit tech startups. The country has become globally renowned for this thriving tech sector, but we must not become complacent – rather than assuming we will remain a leader in tech innovations and digital disruptions, the Government must be willing to intervene and provide a helping hand to those young companies struggling to scale-up. Approximately 50% of startups fail within their first three years, so more must be done to help nurture and support young businesses.
“With Brexit now on the horizon, the Government cannot assume that tech startups will continue to flourish. More policies, investment incentives and infrastructure improvements are needed so startups are able to progress to become mid-size enterprises and beyond.”
Richard Green – CEO and founder of Evvnt – an online event promotion platform:
“There has been plenty of talk about ‘Brand Britain’ and the role of scaling SMEs in driving productivity, and today’s budget has reaffirmed the Government’s commitment to support small businesses. It was promising to see the Chancellor follow through on the commitments he made during the Conservative Party Conference, including extending the enterprise allowance to support unemployed people to set up a business. The business rates relief for smaller retailers is also positive news. However, businesses are calling for more clarity regarding Brexit, and this budget was another missed opportunity by the Government to offer tangible support for SMEs during the withdrawal period. Many entrepreneurs are eager to embrace international markets beyond Europe, but without the right structures, many do not know how to access them.
“The Government’s somewhat muddled approach to Brexit has left many businesses in the dark, and this Budget fell short of providing the clarity entrepreneurs and SMEs were hoping for. The reality is that any initiatives the Conservatives have in the pipeline all hang in the balance of Brexit, and come 29 March 2019, the Government could be forced to deliver a new budget that retracts many of these proposed reforms. While Number 10 has tried to suggest that this will not be the case, it is clearly very difficult to properly forecast how Brexit will affect the private sector once the UK leaves and the sense remains that we are merely treading water until that time.”
Andy Mulcahy, Director of Strategy and Insight, IMRG:
“While small retail business-owners will undoubtedly welcome the Chancellor’s announcement for a cut to business rates, we have to recognise that taxation measures such as these are essentially palliative; pressure on the high street has been building for many years but the core issues driving this shift have not been addressed quickly or comprehensively enough.
“Retail has undergone fundamental change over the past decade or so, with digital now playing an important role in many purchase decisions. Yet online is still portrayed as a negative in much coverage of the high street story – online is seen as being an inconvenience that is ‘killing’ high streets, with politicians from across the spectrum finding it politically-expedient to call repeatedly for ‘online taxes’. Again though, using taxation in this way can only be a palliative measure that is unlikely to bring people back to the high street in large numbers and restore the fortunes of physical retail.
“Physical locations are, and always will be, a necessary part of overall retail. If physical retail is to thrive in the modern era the discussion has to shift away from this culture of blame, where taxation is often assumed to be the answer, over toward a debate around how online and offline can complement, enable and support each other. The infrastructure – and culture – will need to evolve if this model is to be achieved and, while some review of taxation may be necessary as part of that, it should not be considered the primary solution.”
Grant Coleman, Vice President and Market Director for UK, Nordics and Dubai at Emarsys:
“News in today’s Budget that the Government are to reduce business rates and inject £1.5bn to boost the high street will certainly come as a relief to some retailers. But sadly this won’t be enough to be a saviour for the industry on its own. For retailers to succeed in the fast-paced, highly competitive market they currently operate in, they must look at implementing a range of tactics in order to secure customers – they can no longer rely on brand loyalty or footfall alone to drive sales, as they once could.
“Those retailers who succeed need to look at best of breed tactics across their online and physical stores, drawing on customer data and insights to engage with customers in a personalised way. The face of shopping has changed and smart retailers are getting ahead by adapting their strategy to meet new demands. These days it’s far easier to click-and-collect, try clothes on at home, get a second opinion on your phone and send them back for free if they’re not right. Consumers need to get an exceptional (and Instagram-worthy) experience to a) leave the house and b) engage with retailers over spending time in bars and restaurants. Apple was the first to understand how to use a physical space to inspire brand loyalty, and the automotive world is also leading on delivering multi-sensory and experiential stores to drive advocacy. Smart retailers will make physical stores or pop-ups a destination that acts as a marketing tool as much as a sales tool. This will create a true omnichannel experience alongside personalised, AI-driven digital content which treats the customer as an individual.
“Underpinning the new world of retail is data. Without connecting online and offline data to understand the customer, retailers will fail. And with tools such as AI now a part of the marketing mix, retailers have the opportunity to build data-based engagements with customers at the click of a button. And it’s this type of engagement that consumers are crying out for. In fact, 84% of customers are now aware that AI is becoming a staple in their shopping experience, and 61% of consumers want offers or recommendations from brands they regularly use to be tailored to them and their interests. With GDPR now in full swing, it’s essential that businesses understand how data needs to be correctly handled. It is a new way to make sure brands are using data responsibly. ‘Opting in’ to retail marketing will lead to better, more personalised experiences. But brands first need to prove they can be trusted to use data wisely.”
Stephen Roper, Professor of Enterprise at Warwick Business School:
“The forecast of 1.5- 1.6 per cent growth per annum over the next few years suggests the UK’s productivity crisis is set to continue. However, the Chancellor did offer some positive news, particularly for small firms, including support for high street retailers, SME housebuilders, and exporters.
“Halving apprenticeship contributions for smaller firms and the announcement of £200m for the British Business Bank to compensate for the loss of finance from the European Investment Fund will be welcome news too.”
