Hammond, who unveiled the news during his Budget address in the Houses of Parliament, said that he expects to raise around £400M ($511M) per year by taxing companies that operate search engines, social media and online marketplaces.
“There is one stand out example of where the rules of the game must evolve now if they are to keep up with the emerging digital economy. Digital platforms delivering search engines, social media and online marketplaces have changed our lives, our society and our economy, mostly for the better. But they also pose a real challenge for the sustainability and fairness of our tax system; the rules have simply not kept pace with changing business models. It is clearly not sustainable or fair that digital platform businesses can generate substantial value in the UK without paying tax here with respect to that business,” he said.
The tax will be paid by companies that generate at least £500M in global revenues and will be introduced by April 2020.
Hammond said that he is still committed to international corporate tax reform of these companies but said that progress was “painfully slow”, meaning that the UK will introduce its own tax. “It will be carefully designed to ensure that it is established digital tech giants ratter than our tech start-ups that shoulder the burden,” he added. “We will consult on the detail to ensure that we get it right to ensure that the UK remains the best place to start and scale up a tech business.”
Hammond joked that he is “already looking forward to my call with the former leader of the Liberal Democrats” Nick Clegg, who last week joined Facebook.