Online giants such as Google, Apple and Amazon will pay a tax on their digital royalties to further clamp down on tax avoidance and raise £200 million a year, the Chancellor has announced.
Philip Hammond moved to add to the so-called Google Tax by pledging to charge income tax on royalties relating to UK sales even when they are paid to a low-tax jurisdiction and would not normally be taxed in the UK under current rules, starting from April 2019.
But he admitted it will only go some way towards evening out the tax treatment of digital firms and to tackling tax avoidance.
Experts said the online VAT avoidance clampdown will come as a bombshell to the likes of eBay (eBay/PA)
He said: “Multinational digital businesses pay billions of pounds in royalties to jurisdictions where they are not taxed and some of those relate to UK sales.”
The Chancellor added: “This does not solve the problem, but it does send a signal of our determination and we will continue work in the international arena to find a sustainable and fair long-term solution that properly taxes the digital businesses that operate in our cyberspace.”
Mr Hammond also announced that online marketplaces will be jointly liable with sellers for VAT in order to address online VAT fraud, which costs the taxpayer £1.2 billion a year.
He said this would ensure “sellers operating through them pay the right amount of VAT, just as we would expect traditional retailers to do”.
The Government is also looking at a split VAT payment model to reduce online VAT fraud and improve how VAT is collected.
Digital platforms will likewise be asked to play a “wider role in ensuring their users are compliant with the tax rules”, according to this year’s Budget, with the Government set to publish a call for evidence in spring 2018 to explore what more can be done by digital platforms.
Kate Ison, senior associate at Berwin Leighton Paisner, said the announcement is set to see a swathe of HM Revenue and Customs investigations over the next year.
She said: “Tackling offshore tax avoidance remains high on the political agenda.
“The Government has confirmed its intention to introduce new rules to tax royalties on UK sales where those royalties are paid to a low-tax jurisdiction.
“In the short term, we can expect investigations by HMRC into digital businesses to increase.”
The Budget statement showed while the increased income tax from multinationals is expected to bring in £200 million a year on average, it will rise to £285 million in 2019-20 before falling in each of the following years to £130 million in 2022-23.
Under the online VAT crackdown, all businesses operating on platforms will have to show a valid VAT number.
National accountancy group UHY Hacker Young said the online VAT announcement will come as a “bombshell” to the likes of Amazon and eBay.
Michelle Dale, VAT Manager at UHY Hacker Young, said: “This is an enormous new power for HMRC, and the taxman is clearly targeting a sea change in attitudes among the online marketplaces.”
“The cost to the major platforms if they fail to police their sellers properly is now potentially massive,” she added.