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UK scores an own goal with its Digital Services Tax

Many small businesses and entrepreneurs will have received an email the other day from Google which informed them that from the 1st November 2020 Google will be passing the UK’s new 2% digital services tax straight onto their customers.

They are even adding a line item on their invoices for DST (Digital Services Tax) alongside VAT.

That means they are joining the likes of Amazon and others who are simply passing this tax straight onto small and medium businesses and consumers in the UK. Exactly what every online business owner knew they would do.

Basically the UK government has just shot themselves and the UK economy in the foot and scored an own goal.

The digital services tax was introduced in April 2020 by the UK government. It charges a 2% tax on all revenues of search engines, social media services and online marketplaces with revenues of more than £500 million where more than £25 million is derived from the UK.

It’s aimed firmly at Amazon, Apple, Google, Facebook and eBay, who have been criticised many times for not paying the right amount of tax people think they should in the UK.

However remember these are American companies, not UK companies so any tax they should be paying would be collected by the US government not the UK… so really we are crying over spilt milk. The question shouldn’t be how can we extract some money out of these companies, it’s how can we encourage these sorts of companies to be founded, built, grown, registered and kept in the UK in the first place.

As a UK-based business who has to compete in the UK with competitors from the other side of the Atlantic, I know only too well how difficult it is. It seems the UK and Europe do everything in their power to make it harder and harder to compete against foreign companies.

For example, we have to charge our UK and European based customers VAT at 20% while our American competitors do not.

We have to comply with ever complicated security and data standards, our American competitors do not.

And now we have to pay 2% more for advertising to our customers, our American competitors do not.

Robin Hood-style taxation, where you tax the rich to give to the poor, is always a headline grabber and people love to get right behind it… “Tax the big rich companies!”, “Make them pay!”, “They can afford it!” go the chants.

People will always support charging more taxes, as long as it isn’t them paying.

Since very few of us are lucky enough to own billion dollar businesses, of course it’s easy for us all to say “tax the billionaires”. However in reality all that happens is these businesses like Google pass the increases straight down the line to the normal person on the street. Google won’t feel the impact of this new tax, instead the consumer will.

Over time the thresholds and limits will eventually fall further and further, bringing more and more businesses and people into the tax threshold, which is why time after time the middle classes in the UK are always hit the hardest by tax increases.

So, next time you see a tax aimed at the “rich” or a company bigger than yourselves, remember it will eventually hit you along with everyone else.

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