It is aimed at organisations with global turnover in excess of £500m and focusing on those digital platform businesses with a “profitable business in the UK,” which would include the likes of Apple, Amazon and Google.
In a Budget that had plenty of minor giveaways Philip Hammond announced that “austerity is coming to an end, but discipline will remain," as he enjoyed better-than-forecasted economic growth and lower-than-expected borrowing.
In a Budget that “paves the way for a brighter future”, Hammond claimed the UK economy is “back on its feet.”
According to the Office for Budget Responsibility (OBR), next year’s GDP growth forecast has been lifted from 1.3% to 1.6%. It will then grow 1.4% in 2020 and 2021; 1.5% in 2022; and 1.6% in 2023.
With inflation set for 2% next year, the chancellor said the OBR expects a sustained real wage growth over the next five years.
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Meanwhile, deficit is set to decline to 1.4% next year and to 0.8% by 2023/24, and borrowing will be £11.6bn lower than forecast at the Spring Statement. It is then set to fall from £31.8bn in 2019/20, to £26.7bn in 2020/21, reaching £19.8bn 2023/24.
The OBR said that, had there been no change in tax or spending, the chancellor might have achieved his fiscal target of eliminating the deficit by 2023/24. But the it expects there now to be a £20bn.
He increased the money allocated for Brexit preparations by £500m, after an initial £2.2bn and the £1.5bn unveiled in the previous budget. In the coming months he will allocate extra money into separate departments, the chancellor said.
He also pledged to take whatever actions is needed as Brexit approaches, including upgrading the Spring Statement to a full Budget in case of a no-deal.
The chancellor announced the National Living Wage will rise from £7.83 to £8.21. He also said the personal allowance will rise to £12,500 and the higher rate threshold to £50,000 from April 2019.
During his speech, Hammond said the government plans to abolish the use of the private finance initiative (PFI) for future projects, claiming he has never signed one in his life and he “doesn’t plan to”.
The chancellor said the amount SMEs have to contribute towards apprenticeships will be reduced from 10% to 5%, which will cost government £695m.
He announced a £900m business rates support for small businesses, a freeze of the current VAT threshold for two years, the protection of the employment allowance and a new pilot scheme to fund training for the self-employed.
Moreover, he announced an extension to the support for first time buyers, scrapping stamp duty to first time buyers of shared ownership properties up to £500,000.
Hammond said that, despite calls to abolish entrepreneurs’ relief, he has decided to retain it but the minimum qualifying period will be extended from 12 months to 24 months.
He will extend the IR35 rules to the private sector, and delayed the starting date to April 2020. But smaller organisations will be exempt, meaning it will only apply to medium and large companies.
UK digital services tax
The chancellor announced that he will be introducing a 2% UK digital services tax, due to come into effect from April 2020 and expected to raise £440m by 2023/24.
It will be aimed at those generating revenues from business activities that include search engines, social media platforms and online marketplaces.
“This will a narrowly targeted tax on the UK generated revenues of specific digital platform business models,” Hammond said, making clear that this will not be a tax on goods brought over the internet, which would affect consumers.
It will only target profitable companies that generate at least £500m a year in global revenues “in the business lines in scope” to ensure that tech giants, not start-ups “shoulder the burden of this new tax” but exempt those with low profit margins.
“In the meantime we will continue to work at the OECD and G20 to seek a globally agreed solution and if one emerges, we will consider adopting it in place of the UK digital services tax,” he added.
Hammond promised a package to clamp down on avoidance, evasion and unfair outcomes that would raise £2bn over the next five years.
This, Hammond said, would include making HMRC a preferred creditor in insolvencies “to ensure tax that’s collected on behalf of HMRC is actually paid to HMRC.”
Other measures would include ending purchasing services through overseas branches, and “crack down” on insurance companies routing services through offshore territories.
“We will stop our generous R&D tax credit system being abused by reintroducing a PAYE restriction for the small and medium sized companies scheme,” Hammond added.
The chancellor said he will support “all retailers in England” with a rateable value of up to £51,000, by cutting their business rates bill by a third in 2019/20 and 2020/21.
The chancellor said that despite the nearly £12bn in relief measures since 2016, he wanted to introduce these measures to help business now, up until the next revaluation in 2021, in which he said rateable values will adjust “to reflect changes in rental values.”
The chancellor raised eyebrows by stating that he will provide a business rates public lavatories relief of 100% for any public toilets.
The chancellor will provide an extra £10m to deal with abandoned waste sites. He said that “where we cannot achieve reuse, we are determined to increase recycling.”
The government will introduce a new tax on the manufacture and import of plastic packaging that contains less than 30% recycled plastics, with the rate and timescale subject to consultation.
He said that the government concluded, following consultation on a levy on disposable cups, that a “tax in isolation” would not be an effective method to encourage a shift from disposable to reusable cups.