Digital businesses serving the UK now operate in a world where it’s not necessary to have a physical footprint to have tax obligations—user activity is enough. Geography is no longer the only determinant of liability. UK usership and specific services are the focus of the UK Digital Services Tax (DST), which is reshaping how global companies measure, report, and plan for UK user activity. In the 2024–2025 financial year, DST raised around £800 million in revenue for the UK’s government.

Below, we’ll go over when UK Digital Services Tax applies, which exclusions might apply to your business, and how DST affects transfer pricing considerations for corporate groups.

What’s in this article?

• What is the UK Digital Services Tax?
  
• How do you calculate UK digital services revenue?
  
• What exclusions, reliefs, and thresholds apply to DST obligations?
  
• How DST affects transfer pricing considerations for corporate groups
  
• What requirements do companies need to follow under the DST regime?
  
• How businesses can assess and manage their Digital Services Tax exposure
  
• How Stripe can help
  

What is the UK Digital Services Tax?

The UK Digital Services Tax (DST) is a 2% revenue-based tax on large digital platforms. DST applies to three kinds of services: social platforms built around user interaction, search engines, and online marketplaces that connect buyers and sellers.

The tax is calculated on revenue tied to UK users, regardless of where the company is based or books its income. A platform can have no physical presence in the UK and still owe DST the moment it crosses the revenue thresholds.

DST is based on a group’s total digital activity. A group becomes liable only when global revenue from its digital activities exceeds £500 million and UK-derived revenue from the services exceeds £25 million. Once the group crosses both thresholds, it pays 2% only on the UK revenue.

Crossing thresholds in one year means DST applies for that year but not automatically for future years. Corporate groups must reevaluate annually based on updated revenue and user data.

How do you calculate UK digital services revenue?

To calculate UK digital services revenue, you need to know which parts of your platform’s income tie back to UK users. Start by isolating revenue from social platforms, search engines, and online marketplaces. Then use the group’s consolidated financials or a reconstructed version if you don’t normally prepare them. This keeps revenue classification consistent across entities.

Account information, Internet Protocol (IP) addresses, billing details, or shipping destinations can help determine UK user location. Make sure you treat the full fee from a transaction as UK revenue if any participant is a UK user. This captures the platform-level value created by connecting UK users with others.

Count all bookings for UK properties as UK revenue. For non-UK properties, treat the revenue as UK-derived only when the booking user is UK-based. In a similar way, you’ll consider ad revenue UK-derived when the ad is viewed by a UK user, regardless of where the advertiser is established. Split any bundled or hybrid revenue between in-scope and out-of-scope activities.

His Majesty’s Revenue and Customs (HMRC) doesn’t require new data collection, only that you apply what you have in a coherent and defensible way.

What exclusions, reliefs, and thresholds apply to DST obligations?

DST is intentionally scoped, including several design features that help limit its application to specific digital activities. These exclusions and reliefs help clarify which business models fall within the scope of DST in practice.

Here’s how it breaks down:

• Financial services marketplace exemption: Online marketplaces for trading financial instruments, commodities, foreign exchange—also called forex or FX—or peer-to-peer lending are excluded. They’re recognized as operating under different regulatory and economic models than general marketplaces.

• Alternative calculation for low-margin activities: Corporate groups can elect a formula that links DST to operating margin instead of applying a flat 2% rate. If the margin is zero or negative, DST on that activity falls to zero, which protects low- or no-profit digital lines from disproportionate tax burdens.

• Half-rate relief for cross-border user interactions: When a transaction involves a user in another country with its own DST, the UK taxes only 50% of the associated revenue. This reduces overlap across multiple DST regimes.

• Exclusion of unrelated or first-party revenue: Revenue not tied to the in-scope digital service, such as a company selling its own products online, is outside DST. Only marketplace fees and similar revenue streams tied to user-to-user intermediation are included.

How DST affects transfer pricing considerations for corporate groups

DST sits on top of the corporate tax system, which means multinational groups need to think about how this new cost fits into their internal pricing and profit allocation. They need to consider whether their UK entities would realistically bear the whole DST cost or whether some of that cost should be reflected in the platform-owning entity. It’s a good time to review intercompany agreements. Existing service fees, royalties, or cost-sharing arrangements might no longer reflect real economics once DST enters the picture. Updating them ensures the tax burden is allocated in line with how value is created.

Although DST cannot offset Corporation Tax directly, it is generally deductible when calculating taxable profits. This reduces the effective cost of DST but also affects how profits are distributed across the group.

Since DST is charged on gross revenue and transfer pricing allocates profit, a group might face DST in one jurisdiction and profit-based tax in another on the same activity. Mapping DST exposure to transfer pricing positions helps prevent mismatches.

Some large platforms have passed part of the DST cost to users or advertisers. While that’s not a transfer pricing decision, it illustrates the broader question of who ultimately absorbs the tax.

What requirements do companies need to follow under the DST regime?

Corporate groups that cross the liability thresholds will have to implement a clear process for filing, paying, and documenting their position each year. Here’s how businesses can stay compliant with DST:

• Register and notify HMRC: The groups in scope should confirm their status with HMRC and, if they choose, nominate one entity to handle filings and payments. If no nomination is made, the parent company is liable by default.

• Pair DST with the accounting period: DST follows the group’s financial year unless there’s a specific reason to do otherwise. This keeps reporting consistent with how the business measures revenue.

• File an annual DST return: The return must detail in-scope revenue, UK user allocation, reliefs claimed, and tax owed. Filing is due within 12 months of the period end, even if the DST calculation results in zero tax.

• Pay DST on time: Payment is due nine months after the end of the accounting period. Missing the deadline can lead to interest and penalties, so companies often pair DST payment planning with corporate tax cycles.

• Maintain documentation: HMRC expects companies to keep records showing how UK revenues were determined and why the method used is reasonable. Clean data extracts, internal memos, and well-designed methodologies help a corporate group’s position hold up under review.

• Record elections and relief claims: Businesses should document elections for the low-margin calculation or claims for cross-border relief. These decisions shape the final DST liability and need to be defensible.

How businesses can assess and manage their Digital Services Tax exposure

Managing DST exposure starts with knowing exactly which parts of the business fall into scope and how quickly those revenue streams are growing. Here are some best practices for companies.

Inventory all digital services

Corporate groups need to catalog every platform, feature, or business line that could fit DST definitions for social platforms, search engines, or marketplaces. Even secondary or embedded marketplace functions deserve a look, since they can be in-scope.

Analyze global and UK revenue patterns

It’s important for a business to use internal data to evaluate the global value each digital line generates and how much of that value comes from UK users. Forecasting this data helps predict when the business might cross a threshold as it scales.

Evaluate profitability by business line

Since the alternative low-margin calculation can dramatically reduce DST for unprofitable or thin-margin activities, it’s necessary to understand operating margins by service. Modeling both the standard and alternative calculations shows where elections might matter.

Build DST into pricing and unit economics

Businesses need to decide whether their UK pricing absorbs DST or passes some of the cost along to users, sellers, or advertisers. They can sync transfer pricing so the internal entity bearing DST reflects what an arm’s-length counterparty would accept.

Optimize structure and relief claims

Companies can take advantage of cross-border relief when transactions involve users in DST jurisdictions. They can review whether organizational or transactional changes, such as consolidating certain platform functions, could simplify DST compliance without altering commercial reality.

Stay ahead of policy changes

DST is meant to be an interim response, and a global tax framework could replace it. Monitoring HM Treasury updates and Organization for Economic Co-operation and Development (OECD) developments helps businesses anticipate future shifts in digital taxation.

Invest in data and cross-functional coordination

Businesses can automate reporting that tracks user location and revenue allocation, and create a standing group across tax, finance, and product teams. This builds DST awareness into product decisions and revenue planning.

How Stripe can help

Stripe provides a full range of benefits that enable small businesses to handle their payment processing needs effectively and securely. Here’s how Stripe can help:

Comprehensive payment processing solutions

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Seamless integration capabilities

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• Plug-and-play ease: Stripe also offers options that are quick to set up for businesses that want to start processing payments right away.
  

Global reach and currency support

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Advanced security and compliance

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Simple and transparent pricing

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• No setup charges or hidden fees: Stripe does not have hidden charges or long-term contracts. This flexibility and transparency can benefit small businesses with changing transaction volumes.
  
• Industry leading features included: Many industry leading features are included in the per-transaction price such as fraud prevention, tools to optimize the checkout flow, advanced features to boost revenue, and more.
  

Automated reporting and analytics

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• Customizable reports: With Stripe Sigma, businesses can create custom metrics and reports to suit their needs, which can improve strategic planning and financial management. Write structured query language (SQL) from scratch, start with a prebuilt template, or modify existing reports with the help of Stripe’s AI-powered assistant.
  

Additional features and services

• Recurring billing and subscriptions: Stripe supports subscription models and recurring billing, which is key for businesses that offer subscriptions.
  
• Invoicing and payment links: The platform simplifies the process of creating professional invoices and one-time payment links, which are useful for remote billing and transactions.
  
• Access to financial services: Stripe provides additional financial services such as funding through Stripe Capital and banking services through Stripe Treasury.
  

Developer and community support

• Active developer community: With access to a community of developers, businesses can seek advice, share experiences, and find custom solutions.
  
• Extensive documentation and support: Stripe offers thorough documentation and support resources so businesses can troubleshoot and optimize their payment systems.
  
• Updates and new features: Businesses can maintain access to the latest in payment technology and security through regular updates that keep the platform up-to-date and efficient.