Whilst the OECD continues its work on a long term multilateral solution to tackle the tax challenges arising from the digital economy the UK still pressed ahead with the introduction of the Digital Services Tax (“DST). Following the Budget on 11 March 2020 and a confirmation in the Finance Bill 2020 that the DST will be implemented from 1 April 2020 as planned, HMRC has now published guidance for businesses on how to register, calculate, report and pay the tax due. HMRC have also published a DST Manual.
The DST will be a 2 percent tax on UK digital services revenues, arising in connection with certain types of digital services activities (i.e. social media service, internet search engines and online marketplaces) that are attributable to UK users. A group will be liable to the DST when its annual worldwide revenues arising from digital services activity exceed £500 million and more than £25 million of these annual digital services revenues are attributable to UK users. DST applies at group level, but a group’s first £25m of revenues derived from UK users will be exempt.
There is an alternative method that may benefit groups who make a loss or have a low UK operating margin on their digital services activities.
There will be a relief for cross-border transactions when a transaction involves a UK and non-UK user, and the non-UK user is in a country which also operates a similar tax to a DST, only 50% of the revenues from that transaction will be taxable as UK revenues if a claim is made in the DST return.
In-scope businesses will need to register for DST. As the DST will apply to accounting periods from 1 April 2020, where a group’s accounting period ends soon after this date the group may need to take action now.
Check if you need to register for Digital Services Tax
Register for Digital Services Tax
Work out your Digital Services Tax
Submit a Digital Services Tax return
Pay your Digital Services Tax
Please also refer to the 1st edition of our new Taxation of the Digital Economy tool. This tool captures the latest unilateral measures countries are introducing, which vary widely, to address the challenge of an increasingly digitised economy – where economic activity is derived from the connection of people and businesses increasingly through digital means (the challenge of the ‘taxation of the digital economy’).
https://www.bdo.global/en-gb/microsites/digital-services-taxation/taxation-of-the-digital-economy (Link does not work very well on internet explorer, please use an alternative web browser)
For any questions, please contact any of the below members of the Corporate International Tax team in London: