DST22000 - Definition of Revenues for DST

DST is charged on the UK Digital Services Revenues arising to a group in an accounting period.

DST uses revenue recognition principles in accounting standards to determine the amount and timing of revenues arising in an accounting period. These are defined as the revenue recognised in the income statement (or in profit and loss) of the consolidated group accounts, provided that these accounts are prepared under one of the acceptable accounting frameworks.

The acceptable accounting frameworks are:

  • International Accounting Standards (IAS)
  • The generally accepted accounting practice and principles of
    • UK
    • Canada
    • China
    • Japan
    • South Korea
    • US

There is also a provision for HMRC to publish by way of notice any other accounting framework that it considers to be acceptable.

If a group does not prepare consolidated accounts under one of these standards the revenue for DST will need to be calculated in accordance with IAS. The relevant international standard for revenue recognition is IFRS 15.

Investment entities exemption

In certain circumstances some entities, notably investment funds, are not required to prepare consolidated financial statements under some accounting standards. These entities will not consolidate their investments but will instead recognise the movement in the fair value of these investments in the profit and loss account. This means the profit and loss account of these entities will not recognise the turnover of their subsidiaries.

As DST is charged on the revenues arising in the consolidated group accounts, special rules are needed to ensure the revenues from a digital service activity cannot escape DST by virtue of being owned by an investment fund.

Section 62 addresses this by saying the revenues arising in an accounting period are the revenues that would be recognised in the consolidated group accounts if no exemption from the requirement to consolidate the accounts applied.

When the DST accounting period and consolidated financial statements do not align

Where the consolidated financial statements and the DST accounting period cover a different length of time, the revenues of the financial statements will be time apportioned to give the revenues arising in the DST accounting period. The most likely reason for this is the first DST accounting period cannot start before 1 April 2020. Therefore, it is possible the consolidated financial statements will be for a longer period than the first DST accounting period.

Discontinued operations

If a group sells (or plans to sell) part of its business (eg via sale of a subsidiary or a group of subsidiaries), the group may be required by the applicable accounting standards to treat the part of the business which has been sold (or is to be sold) as a ‘discontinued operation’. The group will need to account for the revenues from the discontinued operation in a specific manner.

For example, under IAS (see IFRS 5 paragraph 33) what must be presented in the income statement (or profit and loss account) is a single amount comprising a number of items. This will include the post-tax profit or loss from the discontinued operation.

As the revenues from the discontinued operation will have been taken into account in computing the post-tax profit or loss from the discontinued operation, HMRC considers that the revenues will have been recognised in the income statement (or profit and loss account) and will need to be taken into account for DST purposes. This is because section 63 provides that references to revenues includes revenues, however described, which are recognised in the income statement (or profit and loss).

Where a group uses another applicable accounting standard which takes a comparable approach to IAS, any revenues from discontinued operations will also need to be taken into account for DST purposes.