UK government has raised more revenue than expected in digital services tax and has increased the amount of UK tax paid by big digital companies, according to a report by the National Audit Office.
In April 2020, the government introduced digital services tax on business groups that provide a social media platform, search engine, or an online marketplace to UK users, and have a turnover of more than GBP 500 million worldwide, with GBP 25 million of these derived from UK users. It was originally expected to raise GBP 300-400 million a year in tax revenue.
According to the report, HMRC collected 30 percent more digital services tax than originally forecast in its first year, with the business groups in its scope – expected to include Google, Amazon, eBay, and Apple, based on their public statements – collectively paying GBP 358 million in digital services tax for the 2021 tax year.
The total amount of other taxes paid by big digital companies within scope for the tax (excluding digital services tax) was around GBP 4.5 billion in 2021-22, an increase of 34 percent compared to before the pandemic.
Most digital business groups who are liable for the tax now pay more in digital services tax than they do in corporation tax. Of the 18 business groups paying digital services tax, 13 paid more digital services tax than corporation tax for 2020-21, including three groups that paid no corporation tax. At the other end of the spectrum, three groups paid mostly corporation tax, with digital services tax representing less than ten percent of their corporation tax bill. Around 90 percent of digital services tax collected was paid by just five business groups.
HMRC has identified more business groups that potentially fall within scope for digital services tax than it had initially expected. In July 2019, it had considered 31 business for being potentially in scope but, by September 2022, that number had increased to 101.
The report recommends that HMRC raise awareness among business groups that are unaware they may be liable for digital services tax, particularly those without a physical presence in the UK, and develop a contingency plan for enforcement against businesses outside the UK that fail to engage with HMRC.
Gareth Davies, the head of the National Audit Office, commented: “The Digital Services Tax has succeeded in raising more tax from some big digital companies and has brought in more money than forecast in its first year. However, HMRC could still face challenges enforcing compliance, especially among groups without a physical presence in the UK. It should ensure that big digital companies operating beyond the UK’s borders are aware of the tax and comply with it.”