Digital Services Tax (DST) – United Kingdom

The UK Digital Services Tax (DST) is a tax of 2% on revenues of certain digital businesses generated in connection with UK users. It has applied since 1 April 2020 and was introduced by the Finance Act 2020.

• Tax rate: 2% on in-scope revenues from UK user interactions
• Thresholds: Global annual revenue ≥ GBP 500 million and UK digital revenue ≥ GBP 25 million
• Covered services: Social networks, search engine services, online marketplaces
• Allowance: Annual allowance of GBP 25 million UK revenue (no DST on the first GBP 25 million)

The UK announced its DST for the first time in Autumn Budget 2018. Post-Brexit, the UK was no longer bound by EU state aid or tax harmonisation rules and could introduce the tax independently.

The DST came into force on 1 April 2020. HM Revenue & Customs (HMRC) is responsible for administration. The tax is explicitly designed as a temporary measure — the UK government has repeatedly stated it will repeal the DST once a global agreement on taxing the digital economy is reached (OECD Pillar One). The legislation includes a statutory sunset review mechanism (Section 71 Finance Act 2020): the Treasury must review whether the DST remains appropriate before 31 December 2025.

Following repeated delays in the OECD process, the UK continued levying the DST. Amid ongoing US-UK trade discussions, the potential removal of the DST has been reported as a point of negotiation.

The UK DST covers three clearly defined categories:

• Social media: Platforms enabling users to share and interact with content (e.g. Facebook, TikTok, Snapchat)
• Search engines: Services that search the internet and return results (e.g. Google, Bing)
• Online marketplaces: Platforms connecting buyers and sellers (e.g. Amazon Marketplace, eBay)

Expressly excluded (Section 45): Online financial marketplaces.

Not covered (do not fall within the three categories): Online travel agents and booking platforms (hotels, flights), streaming services, cloud services.

Associated online advertising services (Section 43(7)): Online advertising services connected with a covered activity are treated as a separate taxable revenue component.

• Registration: All in-scope businesses (UK-resident or not) must register with HMRC
• Self-assessment: Annual DST return within 12 months of financial year end (filing deadline)
• Payment: DST payment within 9 months of accounting period end (payment deadline, Section 51 Finance Act 2020)
• Revenue allocation: Pro-rata attribution of worldwide revenue to UK user interactions
• Loss grouping: Group taxation possible — thresholds and allowance apply at group level
• Alternative basis of charge: Businesses may elect an alternative calculation method (Section 48 Finance Act 2020): 0.8 × operating margin on UK revenues

2 corrections:
- EN version also states '12 months' instead of 9 months.
- Payment deadline stated as '12 months' — correct is 9 months (Section 51 Finance Act 2020).
1 update:
- Statutory Treasury review before end of 2025 (Section 71) missing.
8 clarifications.
2 notes.