Government plans to introduce a unilateral "digital services tax" on UK technology companies threaten to smother investment in start-ups and damage innovation in the sector, UK entrepeneurs have warned.

Addressing the Conservative Party Conference, Chancellor Philip Hammond claimed the UK would "go it alone" if necessary with a tax on corporate revenues if an international agreement proves elusive.

But Dom Hallas from The Coalition for a Digital Economy warned that the real losers would "not be the tech giants, but growing British tech businesses" and entrepeneurs.

He said: "The tech giants Hammond claims to be targeting are in fact best placed to deal with an increased tax burden. The true cost will be in hurting innovative British companies who want to develop at home then grow globally."

Rob Kniaz, partner at Hoxton Ventures, an early-stage backer of UK startups including Babylon, Deliveroo and Darktrace, said: "It seems unwise to introduce additional headwinds to the UK technology sector in these uncertain times... Now is not the time to rock the boat whilst we've so many other challenges."

Carolyn Fairbairn, director general of the Confederation of British Industry warned that the proposed tax changes risked being a "blunt and counterproductive" instrument if improperly designed.

"All businesses are increasingly digital," she said, stressing that it would difficult to impose a tax on technology companies which did not reverberate across the wider economy.