UK – THE UK DIGITAL SERVICES TAX: COMPLIANCE

HMRC has updated and published guidance in 5 areas on 1 April 2020 (clickable links):

  1. Check if you need to register for Digital Services Tax
  2. Pay your Digital Services Tax
  3. Register for Digital Services Tax and change your details
  4. Submit a Digital Services Tax return
  5. Work out your Digital Services Tax

Need to register

  • Who
    • Responsible member (if none then the ultimate parent)
    • Global threshold and annual allowance (links to DST manual)
    • Outlines the three in-scope activities (confusingly goes back to calling social media category platforms)
  • Users
    • Individual normally located or business established in the UK
    • Examples of types of evidence
    • Where conflicting evidence consider which is most appropriate

Paying DST

  • Need to register within 90 days of the end of the first DST accounting period. After you register, HMRC will send a 15-digit reference number, starting with an X that you need for payment.
  • Need to pay any DST within 9 months and one day from the end of the accounting period – usual range of ways to pay (and when they recognise payment).

How to register

  • Responsible member (or ultimate parent) will need to:
    • register the group
    • submit the group’s DST return
    • calculate any Digital Services Tax the group owes
    • keep the group’s registered details up to date
    • deal with any enquiries from HMRC about the group’s DST
    • keep and preserve records needed to deliver your group’s return until the sixth anniversary of the end of each DST accounting period, or earlier if directed by HMRC
  • Use the online service and Government Gateway ID
  • Need to tell HMRC about a change to registered details within 90 days of the change (or can cancel registration) – contact Customer Compliance Manager (CCM)

Submitting a return

  • Need to submit DST return within one year of the end of the DST accounting period
  • Includes
    • the total DST liability of the group for the period
    • the company name and amount of liability, for each company in the group that has a liability
    • how much of the £25m annual allowance has been deducted from total UK digital services revenues
  • Use the online service and Government Gateway ID
  • Can amend a return up to 2 years after the end of the DST accounting period.

Working out DST

  • Recap on scope
  • Steps to calculate 2% charge
  • Steps to calculate alternative charge
    • Costs that you can deduct include:
      • cost of sales
      • distribution
      • administration
      • other operating costs
      • amortisation and depreciation
    • Costs which you cannot deduct include:
      • interest expenses
      • expenditure on acquisitions
      • changes in the valuation of assets
      • tax costs, including the cost of the Digital Services Tax, which arise or occur in the normal course of business
  • Allowance pro-rated for periods of less than 12 months
  • Claim for 50% deduction for revenues from transactions where there is a non-UK user in a country which also operates a DST
  • The responsible member must keep/ preserve records to enable it to deliver a correct and complete DST return (eg transaction records, financial management reports, accounting reports, any other relevant documents or records used such as evidence used to identify where users are normally located)

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