As announced at Budget 2018, the government will introduce a new 2% tax on the revenues certain digital businesses earn from 1 April 2020.

This will ensure the amount of tax paid in the UK reflects the value these businesses derive from their interactions with, and the contributions of, an active user base.

There has also been an amendment to planned payment period, with the government stating that legislation will require businesses to pay the DST quarterly rather than annually as per the draft legislation for Finance Bill 2019, published in July 2019.

The government said it will keep the system under review to see how the legislation applies to marketplace delivery fees and whether that application is consistent with the policy rationale of the DST.

In line with G20 countries, the UK is looking for an OECD solution to the issue and this is currently at the proposal stage with plans at draft stage to introduce a global digital taxation framework.

The Red Book confirmed that the UK government will repeal the DST once an appropriate global solution is in place.

A single entity in the group will be responsible for reporting the DST to HMRC. Groups can nominate an entity to fulfil these responsibilities. Otherwise, the ultimate parent of the group will be responsible. The DST will be payable and reportable on an annual basis.

Chris Sanger, EY’s head of tax policy, said: ‘The Chancellor chose to proceed with the new DST that was invented under his predecessor’s predecessor. There has been much speculation that the Chancellor might defer the introduction, having seen the debate between the US and France.  Following the threat of tariffs, the French government agreed to defer collection DST on this year’s revenue until 2021.

‘Despite the government’s own scorecard showing the advancing of the liability due to the way that the government accounts for tax, the Chancellor has followed his French counterpart by deferring payment into 2021. More widely, despite the changes since the tax was introduced, it still seems that the Exchequer believes it will raise £440m per year.’

The Treasury’s impact note suggests HMRC will incur costs of up to £8m to enable both new IT systems and processes to be developed as well as additional staff to monitor and administer the new tax.

There are also concerns that this tax, although it could be shortlived if the OECD introduces a global framework for digital taxation, will have a creep effect, capturing further companies.

Zubin Patel, international tax partner at Deloitte, said: ‘In-scope companies will be concerned that the digital services tax may lead to double taxation and will also need to accelerate their preparations for the new tax given how practically complex the calculations are likely to be.

‘Companies with digital businesses not currently in-scope will be concerned that they will, in time, drift into the rules as businesses increasingly seek to monetise and build their brands digitally through online platforms and social media features. There is a risk that the measure could result in a short-term squeeze in investment and growth among the UK digital sector.

‘The announcement has confirmed the direction of travel, at least for the timebeing. But with the OECD looking to establish a global set of rules for digital taxation by the end of this year, the digital services tax could be short-lived.’