Last week, the government published a report showing that the UK is the “tech unicorn capital of Europe”, creating 35% of all technology companies valued at over $1bn in Europe and Israel in the last decade. This week, the chancellor told these fast-growing UK companies that he plans to introduce a brand-new tax on them if they get too big.
Despite claiming that this is a measure targeted only at tech giants, its scope could easily capture UK success stories should their global revenue top the (relatively low) £500m threshold, for activity such as online marketplaces, social media platforms or search engines.
Investors and entrepreneurs have traditionally viewed the UK as the best place outside the US to start and grow a tech business. At a time when Brexit is already undermining that status, the digital services tax announced in the Budget risks raising new questions about whether the UK really is the natural second home for tech.
The problem isn’t the amount of tax being levied. It is the proposed method, which will be complex and unpredictable, and the impact it will have on international progress towards a real solution to how to tax a modern global digital economy. This is risky tinkering when well-thought-through structural changes are needed in global tax reform – reform that “Global Britain” should be championing.
Instead, the chancellor’s plan risks stymieing efforts to reach an international agreement on taxation of all multinational companies. Progress at the OECD has stepped up in recent months, with concrete proposals expected in June next year and an aim for consensus in 2020.
Read more about Budget 2018 and tech
- Computer Weekly looks at some of the detail in the tech-laden 2018 Budget and can’t get away from the big elephant in the room: the impact of a potential No Deal Brexit.
- Chancellor Philip Hammond’s 2018 Budget dishes out £1.6bn for ‘advanced’ tech and innovation.
The ideas being put forward by the UK’s competitors, such as Japan and Germany, are focused on fixing the whole tax system, not trying to single out tech companies as the UK is now proposing. How much harder will it be to get the US and others to agree to such an approach now that the UK is effectively planning to target specific companies? And what retaliation could the Trump administration decide to take if it views the UK’s new tax as a non-tariff barrier aimed at the US?
TechUK, as the voice of the UK’s technology industry, remains opposed to this digital tax. Rather than further weakening the case for tech firms to scale and grow in the UK, the chancellor should use the time to 2020 to seek the real, longer-term international reform needed, and lay the foundations for the UK to develop its own big tech success stories – not stifle their growth.
Read more on Technology startups
IR35 private sector reforms: National Grid contractors up in arms over tax status assessments
IR35 reforms are 'demonising' contractors and locking them out of work, chancellor warned
Conservatives urged to join Labour, Lib Dems and SNP in committing to post-election IR35 review
Lib Dem election manifesto: Party vows to scrap loan charge and review IR35 private sector reforms