What is the digital services tax?

The UK digital services tax is a 2% tax on revenues from UK users. It applies to large search engines, social media platforms and online marketplaces. It started in April 2020. It applies to groups with global revenues over £500 million and more than £25 million of UK revenue from these services.

Big tech firms can earn large sums from UK users while booking profits in low-tax countries. The UK introduced the digital services tax as a stopgap while countries negotiated new global rules. It taxes revenue rather than profit, so it applies even if a firm reports little UK profit. The first £25 million of UK digital revenue is exempt. It is paid by the groups.

In 2021 more than 130 countries agreed a two-pillar global tax deal. One part would reallocate taxing rights over the largest multinationals to the countries where their customers are. The UK said it would scrap its tax once that was in place. Progress on that part of the deal has since stalled. Many countries kept their taxes. Talks continue at the OECD.

The tax has caused tension with the United States, where most affected firms are based. US administrations have threatened tariffs in response. The UK kept the tax during trade talks in 2025. Supporters say it is a fair contribution from global giants. Critics say it is passed on to UK businesses and consumers through higher fees. Others want it widened.

Who it affects: Big search, social media and marketplace firms