Living in a digital (services tax) world

Living in a digital (services tax) world

The UK’s Digital Services Tax is now in effect and new compliance guidance has been issued by HMRC.


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New guidance issued by HMRC, as well as the opening of their online Digital Services Tax (DST) registration portal, underlines that DST is now in effect. This will have an impact on all relevant digital transactions from 1 April 2020. There are a number of factors to consider, including commercial decisions around the cost of the tax, accurate tracking of data, and reporting and compliance considerations.

Our recent article outlined the key features of the UK’s Digital Services Tax (DST). This applies to impacted revenues related to UK users from 1 April 2020.

HMRC have now opened the online portal to allow companies to register for the tax, and have also released guidance on a number of compliance issues related to the tax, including:

  • Who should register for the tax? This is based on previously published guidance detailing the scope of the new law; 
  • When and how to register with HMRC. This must be done within 90 days of the end of the first relevant accounting period – so, for example, by 31 March 2021 for a 31 December 2020 year end; 
  • How to register a group. This includes choosing a company to be the group’s responsible member, and the responsibilities of that company (including registration, submission of the DST return, calculation of the tax, and keeping and maintaining records and dealing with any HMRC queries); 
  • When and how to submit the DST return. This must be done within 12 months of the end of the accounting period – so, for example, by 31 December 2021 for a 31 December 2020 year end;
  • What information needs to be included in the DST return? This includes the company’s or group’s total DST liability for the period, the liability (per group company), the use of the £25 million annual allowance, and details of the use of any applicable reliefs (e.g. the low margin exemption and/or the cross-border relief);
  • How to amend a previously-submitted DST return. This can be done up until two years from the end of the accounting period – so, for example, until 31 December 2022, for a 31 December 2020 year end; and
  • How and when to pay DST. This must be done by nine months and one day after the end of the relevant accounting period – so, for example, by 1 October 2021 for a 31 December 2020 year end.

Whilst a number of these compliance and payment deadlines are still some way in the future, our experience is that groups may find it challenging to accurately track and report in-scope revenues to the level of detail required (particularly where taxpayers expect to make use of one or more of the available reliefs, e.g. the low margin exemption or the cross-border transaction relief for online marketplaces). A number of taxpayers are also considering the impact the tax may have on commercial decisions such as pricing. These aspects of the DST should be considered as a matter of urgency for potentially impacted groups.

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