UK’s digital services tax reaps almost £360m from US tech giants in first year

The digital services tax has reaped almost £360m from US tech giants including Amazon, Google and Apple in its first year, raising more from most of the digital businesses than they have been paying in UK corporation tax.

A National Audit Office (NAO) report has found the UK's digital services tax, which was introduced in April 2020 and imposes a 2% charge on the gross revenues made by digital titans running search engines, social media services and online marketplaces, hauled in 30% more than the government had forecast in 2021.

The government, which believes the tax could cumulatively bring in more than £3bn by 2024-25, outperformed its first 2020-2021 annual target of £275m because of the huge online sales boom during the pandemic.

"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," said Gareth Davies, the head of the NAO. He said UK authorities have not identified any firms failing to comply with the new tax, but that "HMRC could still face challenges enforcing compliance, especially among groups without a physical presence in the UK".

The tax is levied on gross revenues from digital advertising sales, and e-commerce sales companies including Amazon, Apple and eBay make from third party sellers on their sites, but does not capture direct online sales to consumers from retailers such as John Lewis and Tesco.

It is targeted at the largest firms, those with worldwide digital revenues over £500m and with revenues derived from UK users over £25m.

Tech giants such as Amazon, Google and Meta-owned Facebook have historically paid relatively little corporation tax in the UK because they typically ensure their British operations make very little profit, instead funnelling earnings through low-tax jurisdictions such as Luxembourg and Ireland.