Digital Services Tax (DST) Compliance

Guide to Digital Services Tax for large digital platforms. Understand the 2% tax rate, revenue thresholds, registration process, and filing requirements for social media, search engines, and online marketplaces.

UK-wide
Guide summary

If your digital business earns over £500 million globally and £25 million in the UK from social media, search engines, or online marketplaces, you must register for Digital Services Tax (DST). Pay 2% on UK revenues after a £25 million allowance. Register within 90 days of meeting the thresholds.

  • DST rate: 2% of UK revenues after £25m allowance
  • Global revenue threshold: £500m per year
  • UK revenue threshold: £25m per year
  • Register with HMRC within 90 days of meeting thresholds
  • Pay DST within 9 months and 1 day after accounting period
  • File DST return within 12 months after accounting period
  • Late return penalty: £100 (under 93 days), £200 (over 93 days)
  • Third late return: £500 (under 93 days) or £1,000 (over 93 days)
  • DST deductible as a business expense for corporation taxheng
  • Safe harbour available for businesses with low UK margins
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UK-wide

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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.

Technology & Digital Requirement

In-scope digital services only

DST applies only to revenues from these specific digital services:

  • Social media platforms: Services that promote user interaction and facilitate sharing of user-generated content between users (e.g., Facebook, Twitter, TikTok)
  • Search engines: Internet search engines only. On-site search functionality is not in scope (e.g., Google Search, Bing)
  • Online marketplaces: Platforms that facilitate sales of goods or services between third-party sellers and buyers (e.g., Amazon Marketplace, eBay, Etsy)
  • Associated online advertising: Online advertising services directly connected to these qualifying services

Not in scope: SaaS, cloud infrastructure, payment processing, telecommunications, streaming services (unless they include in-scope marketplace or social features).

Who this applies to: Only applies to groups operating social media platforms, search engines, or online marketplaces with UK users and exceeding revenue thresholds.
Enforcement: HMRC enforces DST compliance. Penalties apply for late registration, late returns (£100-£1,000), and late payment (interest charges).
DST scope and definitions (GOV.UK) (opens in a new tab)

How to register for DST

If your group meets both revenue thresholds and operates in-scope services, you must register with HMRC.

  1. 1

    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.

  2. 2

    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.

  3. 3

    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.

  4. 4

    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.

  5. 5

    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.

  6. 6

    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.

When to consider safe harbour:

  • 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 penalties for failures:

  • Late registration: Penalty under Finance Act 2008 Schedule 41 for failure to notify HMRC within 90 days of meeting threshold conditions (unless reasonable excuse)
  • Late return (within 3 months): £100 penalty
  • Late return (over 3 months): £200 penalty
  • Third successive late return: £500 (if within 3 months) or £1,000 (if over 3 months). Higher penalties continue for all subsequent periods until you file a return on time.
  • Late payment: Interest charged from due date until paid
  • Inaccurate return: Penalty based on behaviour (careless, deliberate, concealed) ranging from 0% to 100% of tax lost

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.

Planning consideration: Keep informed about OECD Pillar 1 implementation timelines. DST may be replaced with a different taxation framework in future years.