DST41000 - DST Thresholds, Rates and Allowances

Thresholds

DST is chargeable when the threshold conditions are met. This will be the case when the group’s revenues exceed the two revenue thresholds. These are that the group’s:

  • Digital Services revenues exceed £500m in the accounting period, and
  • UK Digital Services revenues exceed £25m in the accounting period.

Both thresholds must be met before a group is chargeable to DST. This means groups will only be subject to DST if the worldwide revenues from their digital services activities exceed £500m in the DST accounting period, and at least £25m of these revenues are attributable to UK users.

The rules for determining a DST accounting period are covered in DST43000.

The thresholds apply to the revenues of the group arising from digital services activities. Where a group carries out more than one digital services activity, the thresholds apply to the total combined revenues of all the digital services activities. The definition of a group for DST can be found in DST12600.

The thresholds are proportionately reduced where the accounting period is less than 12 months. For example, the thresholds would be reduced from £500m and £25m to £250m and £12.5m for a 6-month accounting period (i.e. £500m x 6/12 and £25m x 6/12 respectively).

The group’s UK digital services revenues are calculated before any relief for relevant cross border transactions when testing whether the UK revenue threshold is met. This ensures groups wishing to claim this relief must include the claim in their DST return.

Rates

DST is charged at a rate of 2% of the group’s UK digital services revenues after deducting the £25m annual allowance.

Groups can elect to calculate their DST under the alternative charge provision.

Allowance

There is a £25m annual allowance. This is deducted from the group’s UK digital services revenues before the DST rate, or alternative charge calculation, is applied.

The allowance is pro-rated for accounting periods less than 12 months.

Example A

Group A provides a social media platform and has a worldwide revenue of £510m in the 12 months to 31 December 2022. £125m is attributable to the UK users. After applying the DST allowance, the DST liability will be calculated as 2% of £100m (£125m - £25m).

Example B

Group B provides an online marketplace and makes up its accounts to 31 December 2020. Its first DST accounting period runs from 1 April 2020 to 31 December 2020. The DST allowance for Group B will be calculated as 9/12 x £25m.

Adjustment for the Alternative Charge Provision

Where a group has more than one type of digital services activity and elects to calculate its DST liability for one of those activities under the Alternative Charge calculation, the DST allowance will be apportioned between the digital services activities in the proportion of UK DST revenues earned through each digital services activity.

Example C

Group C is a large multinational group that is in scope of the DST. It has £250m of revenue from UK users during a 12-month DST accounting period. The revenues arise from three DST activities. It has £150m of revenues from Social Media activities, £75m from Search Engine and £25m from Online Marketplace.

Group C elects to use the Alternative Charge provision on its revenue from its Social Media services and Online Marketplaces. They are relatively new enterprises for the business and currently have low operating margins.

The total allowance is £25m as it is a 12 month accounting period. Group C will need to apportion the DST allowance between the three activities. The allowance for each digital services activity is calculated as follows:

  • Social Media: £25m x (£150m / £250m) = £15m allowance
  • Search Engine: £25m x (£75m / £250m) = £7.5m allowance
  • Online Marketplace: £25m x (£25m / £250m) = £2.5m allowance