20 April 2020
Radar - April 2020 – 5 of 5 Insights
The operation of current corporate tax rules to businesses operating in the digital economy has been a considerable issue as it has led to what the UK government describes as a misalignment between the place where profits are taxed and the place where value is created. While an international solution has long been sought and is still under discussion, some countries, including the UK, have decided to set up their own measures pending international agreement.
The UK's Digital Services Tax (DST) applies from 1 April 2020. It is a 2% tax on businesses with global annual turnover of over £500m where more than £25m of annual revenue is generated from providing social media services, internet search engines or online marketplaces to UK users. The first £25m of revenue from UK users will be exempt.
The tax is on revenue not profit and it applies to global group revenue so the thresholds should be calculated at group level but liability is at entity level and groups have to nominate a company to fulfil reporting obligations.
The details of the tax are set out in a manual.
HMRC has also now issued further guidance on:
If you are caught by the DST, you will need to register. HMRC reminds businesses with an accounting period which ends soon after 1 April 2020, that they should register to avoid a potential penalty. Payment of the tax is due within nine months and one day from the end of the relevant accounting period.
By way of reminder the tax applies to:
A UK user is either:
This may be different to where the user is located at the time of the transaction. Evidence must be used to determine a user's location. Sources of evidence can include:
If there is conflicting evidence about the user’s location, the most appropriate should be used to determine where the user is normally located.
Read more about the DST here.
by Multiple authors