Among the corporation tax measures taken in the Finance Act 2020, the corporation tax (CT) rate was maintained for year 2020/2021 and a new Digital Services Tax (DST) was introduced.
CT rate for the financial year 2020/2021
The CT rate has been set at 19% for the financial year 2020/2021. This is a change from the 2015 Budget announcement that the rate would be reduced to 18% from 1 April 2020, and the 2016 Budget announcement that the rate would be further reduced from 18% to 17% from 1 April 2020.
A new 2% tax on the revenues arising from digital services which derive value from UK users is applicable as from 1 April 2020. The purpose of the measure is to ensure that large multinational businesses in the scope of the measure make a "fair" contribution to supporting vital public services (as user participation is not the test for allocating profits between different countries).
Scope of the DST
The DST applies to group´s businesses obtaining digital services revenues attributable to UK users.
The following are considered digital services activities:
- social media service: being services in which the main purpose (or one of the main purposes) is to promote interaction between users or between users and user-generated content and sharing user-generated content;
- search engine: not defined as such but it does not include searches in the very same website or facility; and
- online marketplace: being services in which the main purpose (or one of the main purposes) is to facilitate sales between users, i.e. services enabling users to sell, advertise or offer particular things to other users.
So considered associated digital services activities (such as the ones facilitating online advertising or generating significant benefit from the association with the digital service activity) are also in the scope of the DST. Where revenues arise in connection with a digital services activity, the revenues are to be treated as arising in connection with the activity "to such extent as is just and reasonable".
Persons liable to DST – DST calculation
DST is imposed at the level of group businesses that provide digital services activities with the following conditions:
- that the total amount of digital services revenues arising in an accounting period to members of the group exceeds GBP 500 million; and
- that the total amount of UK digital services revenues arising in that period to members of the group exceeds GBP 25 million.
If the above conditions are met, the members of the group are liable to a 2% DST in respect of the UK digital services revenues generated in an accounting period, being the first GBP 25 million of revenue derived from UK digital services activities excluded from the calculation.
For more information about the DST, see this HMRC guidance.
The Finance Act 2020 can be accessed here.
Report from Rebecca Sheldon, Barrister, Old Square Tax Chambers