Budget 2017 UK: Philip Hammond targets tech giants on tax avoidance to raise £200m a year

Lynsey Barber
Follow Lynsey
Apple, Google, Amazon and Facebook are among tech firms under pressure over tax arrangements (Source: Getty)

The chancellor has put tech firms firmly in his sights, announcing a change to the way online businesses are taxed from which he hopes to boost the government's coffers by £200m.

Philip Hammond said he will introduce a "tax on royalties" that means companies will have to pay tax on royalty payments that are made in relation to UK sales to low tax jurisdictions outside the UK.

The plans, which will first be consulted on to iron out the detail, will come into force from April 2019.

"This does not solve the problem, but it does send a signal of our determination," said Hammond, also announcing that it has published a postilion paper on the tax "challenges" posed by digital businesses "setting out our emerging thinking about potential solutions".

Read more: EU competition chief threatens tech giants with tax reform

And Hammond will make online marketplaces liable for VAT paid on goods.

Amazon and eBay have been accused by MPs of failing to do enough about online VAT fraud, where sellers from outside the UK can undercut prices by not charging VAT.

On the tax change, the government said: "Certain digital businesses, like social media platforms or search engines, create value in ways that are not reflected in existing tax rules."

Hammond also signalled that if international efforts between countries to update the tax system for the modern age did not pan out, that it is "prepared to act alone" on the matter "if necessary".