Budget 2020: UK moves ahead with unilateral DST

UK moves ahead with unilateral DST

Reaffirming its commitment to repeal the tax if a global solution is reached.

Budget 2020

In an announcement-heavy Budget, the Chancellor was silent on the UK digital services tax (DST) during today’s Budget speech. However, the 2020 Budget Red Book confirms that the DST will be effective from 1 April this year (notwithstanding earlier speculation that the tax may be delayed or scrapped). 

It does not appear that there will be significant changes to the draft legislation and guidance published last year. It will of course be necessary to review the legislation carefully to confirm this when it is released. 

Recap of the DST

The DST is a 2 percent tax on gross revenues connected with digital services activity; that is, relevant revenues of businesses which provide (1) a social medial platform; (2) a search engine; or (3) an online marketplace (with an exemption for financial and payment services providers) to UK users, from 1 April 2020. If an activity is ancillary or incidental to an in-scope digital services activity, its revenues will also be subject to the DST. A UK user is defined as an individual that is normally located in the UK, or other type of user established in the UK (with separate rules applying to the supply of UK-based property).


A group will be liable to the DST when:

  • It earns revenues from digital services activity;
  • 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 (UK Digital Services Revenues). 

Liability calculation 

The DST liability is calculated at group level, and is allocated to each (UK and non-UK) member of the group in proportion to their share of the group’s UK Digital Services Revenue. The first £25m of this revenue is not taxed. 

The legislation includes a cross-border relief that reduces 50 percent of the UK Digital Services Revenues in relation to an online marketplace transaction, where the same revenue is subject to a similar digital services tax in another country. Additionally, there is a ‘safe harbour’ election for loss-making or low-margin businesses.

What is interesting to note? 

The Budget 2020 Red Book notes that the Government will be reviewing how the DST legislation applies to marketplace delivery fees, and whether it is consistent with the policy rationale of the DST. Lastly, the document also reaffirms that the DST will be repealed once an appropriate global consensus solution is in place. In practical terms, this is expected to be following the conclusion of the work currently being undertaken by the OECD, and in line with the OECD’s recommendations for unilateral measures. 


Matthew Herrington 

+44 20 76944348


James Sia

+44 20 76944682


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