Digital Services Tax (DST) is a specialist tax that applies to large digital businesses that derive value from UK users. If your business operates a social media platform, search engine, or online marketplace with significant global and UK revenues, you need to understand DST compliance.
DST was introduced on 1 April 2020 as an interim measure until international tax reform is implemented. It applies only to the largest digital groups.
In-scope digital services
DST applies only to revenues from these digital services:
- social media platforms, which promote user interaction and the sharing of user-generated content between users (for example, Facebook, Twitter and TikTok)
- internet search engines (for example, Google Search and Bing), but not on-site search functions
- online marketplaces that facilitate sales of goods or services between third-party sellers and buyers (for example, Amazon Marketplace, eBay and Etsy)
- online advertising directly connected to these services
SaaS, cloud infrastructure, payment processing, telecommunications and streaming services are not in scope unless they include in-scope marketplace or social features.
How to register for DST
If your group meets both revenue thresholds and operates in-scope services, you must register with HMRC.
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Determine if DST applies
Use the GOV.UK checker to confirm your digital services are in scope. Calculate your group's worldwide digital services revenues and UK digital services revenues for the accounting period.
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Register within 90 days
Register online with HMRC within 90 days from the end of your first accounting period where both thresholds are exceeded. You'll need your corporation tax UTR and details of all group companies.
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Set up DST accounting processes
Implement systems to track UK revenues separately from worldwide revenues. Ensure accurate allocation of revenues to in-scope services. Calculate the £25m allowance correctly.
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File annual DST return
Submit your DST return within 12 months of your accounting period end. Declare total revenues, UK revenues, in-scope revenues, and calculate tax due after the £25m allowance.
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Pay DST liability
Pay your DST liability within 9 months and 1 day from the end of your accounting period. DST is deductible for corporation tax purposes, so adjust your CT calculation accordingly.
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Claim DST as business expense
Deduct DST payments as a business expense in your corporation tax computation. DST reduces your taxable profit, lowering your corporation tax liability.
Safe harbour election (alternative calculation)
If your digital services business operates on very low or negative UK operating margins, you may elect to use an alternative calculation method for DST. This 'safe harbour' provision ensures DST doesn't have a disproportionate effect on business sustainability.
Consider safe harbour if:
- your UK digital services activities are loss-making or have very low profit margins
- the standard DST calculation (2% of UK revenues after £25m allowance) would exceed your UK operating profit
- you need protection from DST undermining business viability
The alternative calculation is based on your UK operating margin from in-scope activities. If you're uncertain whether safe harbour applies, consult a tax advisor or contact HMRC before filing your return.
Penalties and compliance
HMRC enforces DST compliance with these penalties:
- a penalty under Finance Act 2008 Schedule 41 for late registration, meaning failure to notify HMRC within 90 days of meeting threshold conditions (unless reasonable excuse)
- £100 for a return up to 3 months late, or £200 for one more than 3 months late
- £500 or £1,000 for a third successive late return (up to or more than 3 months late). Higher penalties continue for all subsequent periods until you file a return on time.
- interest on late payment, charged from the due date until paid
- a penalty for an inaccurate return of 0% to 100% of the tax lost, depending on whether the error was careless, deliberate or concealed
DST and international tax reform
DST was introduced as an interim measure pending OECD international tax reform (Pillar 1). The UK government has committed to remove DST once Pillar 1 is implemented globally.
Pillar 1 aims to reallocate taxing rights for the largest multinational enterprises to market jurisdictions. When this is in place, DST will be repealed.
Keep informed about OECD Pillar 1 implementation timelines. DST may be replaced with a different taxation framework in future years.
Legal basis
Primary legislation and key regulations
Browse UK legislation (opens in a new tab) legislation.gov.uk