UK-US Trade Deal & Digital Services Tax: Key Takeaways for Tech Firms and Future Negotiations

The United Kingdom and the United States signed a Trade Deal on May 8, 2025, including changes to export and import tariffs across various sectors, including steel, aluminium, automotive manufacturing, and agriculture. The deal, signed by US President Donald J. Trump and UK Prime Minister Keir Starmer, was the first trade deal the US signed after the imposition of global tariffs.

The Importance of the Deal for the Digital Industry

The “historical” or “breakthrough” deal, as presented by the US President and UK Prime Minister, primarily addresses three industries: automotive, farming, and aerospace. Under the agreed terms, the UK will reduce the average tariffs on US goods to 1.8% from the current 5.1%. The deal should increase trade between the two countries and keep a 10% US tariff on UK goods.

The deal, which was highly anticipated by companies operating in the tech and services industry, does not mention the UK's 2% Digital Services Tax (DST), which primarily impacts US tech companies. Nevertheless, there are ongoing discussions between the UK and US governments over the DST, which contributes nearly GBP 800 million annually to the UK budget.

Considering that DST is one reason for the imposition of US tariffs, it could be expected that the following rounds of negotiation between the two countries will include a request for restructuring the UK DST applicable to US companies.

Conclusion

Considering that the US President heavily opposes the DST and sees it as a tax designed to harm US companies, the fact that it was not part of the Trade Deal was a surprise. However, although it was not part of the deal, taxable persons operating in the tech sector should monitor future announcements from both governments since DST is expected to be part of further negotiations. 

Until the applicable rules are renegotiated and changes are announced, the US tech companies must report and pay a 2% DST on the revenue they earn in the UK.

Source: The White House, Reuters, Grant Thornton