How does the Digital Services Tax work in the UK?

Full answer

The Digital Services Tax (DST) was introduced by the Finance Act 2020, taking effect from 1 April 2020. It is a separate levy on the UK revenues of large digital businesses -- not a profits tax and not VAT. **Key features:** - **Rate:** 2% on the UK revenues of the taxable digital activities - **Scope:** Social media services, internet search engines, and online marketplaces - **Thresholds:** The business must have global group revenues from digital services exceeding £500 million per year AND UK revenues from those digital services exceeding £25 million per year - **Safe harbour:** A company with a global loss or very low global profit margin can claim a relief that reduces the DST liability **Who pays DST:** Major US and global technology companies including Meta, Google, Amazon Marketplace, TikTok, and similar large platforms. **What DST is NOT:** - It is not VAT and cannot be reclaimed by businesses as input tax - It is not Corporation Tax -- it operates alongside CT, not in place of it - It does not apply to online retail sales directly (only the marketplace commission/fee if acting as an intermediary) **Interaction with corporation tax:** DST paid is deductible as a business expense when calculating corporation tax profits -- meaning the effective cost to the company is reduced by its CT rate. **Revenue:** DST raises approximately £700-800 million per year. **US trade pressure:** The US government has consistently objected to the DST as discriminatory against US companies and has threatened retaliatory tariffs. There is ongoing negotiation at OECD level for a global minimum tax on digital economy profits (Pillar One/Two) that could eventually replace national DSTs. The UK government has stated willingness to repeal DST once a satisfactory global agreement is reached.

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