Chancellor of the Exchequer Philip Hammond has announced that the UK will introduce a Digital Services Tax aimed at ensuring tech giants such as Google and Facebook pay their fair share.

The new tax, announced during the Autumn Budget statement, will be levied against companies that are profitable and generate at least £500m a year in global revenues.

Coming into effect in April 2020, the Digital Services Tax is expected to raise over £400m a year.  He added that the clampdown will raise a total of £2bn over the next five years.

The official HM Treasury Twitter account tweeted that the tax would be 2% on the money they make from UK users.

It will not include taxation of goods purchased online, with Hammond pointing out that such taxation would be passed on to the consumer, making it less likely to have as much of an impact on the likes of online retailer Amazon.

The Chancellor also said that the Digital Services Tax would be “carefully designed” to ensure that it targets established tech giants and not tech startups.

“We will consult on the detail to make sure we get it right and to ensure that the UK continues to be the best place in the world to start and scale up a tech business,” he added.

Little is currently known about the finer details of the tax, such as how it will be collected and whether a profitable business means profitable in the UK.

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Mandeep Singh, CEO and co-founder of e-commerce platform and community Trouva, said: “The introduction of the Digital Services Tax appears to be one way to level the playing field with the e-commerce giants, but the devil will be in the detail to come as at the moment how it will exactly work is unclear.”

The Digital Services Tax could make way for a global agreement

Earlier this month at the Conservative Party Conference, Hammond indicated that the UK would adopt a Digital Services Tax if the international community could not come to an agreement.

He today insisted that a global agreement is the best long-term solution, adding that “if one emerges, we will consider adopting it in place of the UK Digital Services Tax”.

Many speculated that the Chancellor would introduce a digital services tax, which Dominic Stuttaford, head of tax for Europe, Middle East, Asia and Brazil at global law firm Norton Rose Fulbright, said was “in part in response to a concern that they do not pay tax in all the jurisdictions where they generate value.”

Ahead of the Budget, Stuttafrod said that Hammond’s difficulty is that “this may take a few years and there is pressure for change. However, if he does take unilateral action, that may not help the reputation of the United Kingdom as a competitive regime in tax terms.”

Last year, Google paid just £36.4m in tax on revenues of around £1bn, while Facebook’s UK bill was just £15.7m.

“This step shows that we are serious about this reform,” said Hammond. “It is only right that these global giants, with profitable business in the UK, pay their fair share towards supporting our public services.”

Elsewhere, the Chancellor announced £1.6bn of investment for the UK’s modern industrial strategy, ranging from nuclear fusion to quantum computing.

It is the final Autumn Budget before the UK leaves the European Union and was brought forward to avoid clashing with Brexit negotiations.