Digital Services Tax

What the UK digital services tax covers

Section 43 of the Finance Act 2020 defines a digital services activity as providing a social media service, an internet search engine or an online marketplace. Each term is narrower than it sounds.

A social media service is an online service whose main purpose, or one of its main purposes, is “to promote interaction between users,” where making user-generated content available to other users is “a significant feature of the service.” An internet search engine does not include a facility that only searches one website or closely related websites, so the search box on your own site is out. An online marketplace is a service whose main purpose, or one of them, is “to facilitate the sale by users of particular things,” with things meaning services, goods or other property. Section 45 excludes online financial marketplaces, where more than half the revenue comes from facilitating trades in financial instruments, commodities or foreign exchange.

The revenue that counts is everything arising “in connection with” those activities, which includes advertising sold on the platform. Section 41 then decides which of it is UK revenue. A marketplace’s revenue is attributed to the UK when a UK user is a party to the transaction or the sale concerns UK accommodation or land. Advertising revenue is attributed to the UK when UK users view the ads. Section 44 treats an individual as a UK user if it is reasonable to assume they are normally in the United Kingdom, and a business if it is established there.

The thresholds, the allowance and the 2% charge

Section 46 sets two threshold conditions, and the group must meet both in the same accounting period: digital services revenues of more than £500 million worldwide, and UK digital services revenues of more than £25 million. For a period shorter than a year, both amounts are reduced proportionately.

Section 47 then calculates the charge in steps. Take the group’s UK digital services revenues, deduct £25 million, and take 2% of what is left. A group with £40 million of UK digital services revenues owes 2% of £15 million, which is £300,000. The liability is spread across the group members in proportion to the UK revenue each one earned.

Section 48 offers an alternative basis for low-margin activities. A group can elect, category by category, to replace the 2% charge with 0.8 times the operating margin times the net revenues, which reduces the tax where a category makes little or no profit and removes it where the category loses money. Section 50 lets a marketplace halve the UK revenue from a transaction with a foreign user when that revenue is also subject to another country’s DST.

Under section 51, the tax is due and payable on the day after the end of nine months from the end of the accounting period. Section 52 makes one company, the responsible member, file and deal with HM Revenue and Customs for the whole group. That is the parent unless it nominates another group company.

Digital services tax vs VAT on digital services

The difference is who pays and on what.

VAT or GST on digital services is charged per sale. The seller adds it to the customer’s price (or carves it out of an inclusive price), shows it on the invoice, collects it with the payment and files returns monthly or quarterly. The customer bears the cost. A business customer can often recover it or account for it under a reverse charge. Thresholds are low or zero: many countries register a foreign digital seller from its first consumer sale.

A DST is charged on the provider’s own revenue. Nothing is added to the customer’s price by law, nothing appears on an invoice as a tax line, and the customer has nothing to recover. It is assessed once a year, after the fact, on a group-level revenue figure. Its thresholds are set so that only the largest platforms reach them.

The overlap is the word “digital,” and the fact that both arrived as governments tried to tax online businesses with customers in their country. A US SaaS company selling to UK consumers through Stripe owes UK VAT on those sales from the first one, and will almost certainly never owe UK DST.

Why a DST never shows up in Stripe Tax

Stripe Tax calculates taxes that are charged on a transaction: it decides, for each sale, whether a tax applies in the customer’s location and adds it to the invoice or Checkout session. The tax_type values Stripe lists for a tax rate include vat, gst, sales_tax and service_tax, along with local types such as amusement_tax and communications_tax. None of them is a digital services tax, because a DST is not charged on a transaction.

So there is nothing to configure. A DST will not appear as a registration in Stripe Tax, as a line on an invoice, in the itemized tax export or in the tax amounts that sync to your accounting system. If a search for digital services tax brought you here because Stripe started adding tax to sales in another country, what you are looking at is that country’s VAT or GST on electronic services, and the questions are about registration thresholds and returns, not platform revenue tests.

The UK is not the only country to have had a DST, and the rules move. Canada announced on June 29, 2025 that it would rescind its Digital Services Tax, halted the collection due on June 30, 2025, and said legislation to repeal the Digital Services Tax Act would follow. Check the country’s own statute or tax authority before relying on any summary, including this one.

How a DST is handled in QuickBooks

For a group that does owe a DST, the tax is a cost of the business, not tax collected from customers. It does not belong in the QuickBooks Sales Tax Center or in a sales tax payable account, which hold money you collected on behalf of a tax authority. Record it as an expense, with an accrued liability in a separate account until it is paid. Your accountant will decide whether it sits above or below the operating line and how it interacts with income tax.

Keeping it out of the sales tax accounts matters because those accounts reconcile to tax collected. If VAT on digital sales flows from Stripe into a liability account, that account should tie to Stripe’s tax reports each period. A DST accrual mixed into it would leave a difference that nothing in Stripe explains.

For most Stripe sellers the DST question comes up from the other side, as a buyer. If a platform you buy from raises its prices or adds a surcharge to recover its own DST, that charge is part of the cost of what you bought. Book it with the purchase, not as a tax you owe.