With the new framework set to incur significant costs, the CMA has proposed that SMS firms shoulder the burden equally
The CMA has proposals for how it will recover some of the costs of its regulation of digital markets
On 5 June 2025, the UK’s Competition and Markets Authority (CMA) published a consultation on its draft rules for the digital markets competition regime levy, its proposed funding mechanism for enforcing the new regime. Under the Digital Markets, Competition and Consumers (DMCC) Act 2024, the CMA has the power to impose levies on firms designated as having strategic market status (SMS). The draft rules set out how the regime’s costs and the levies themselves will be calculated and recovered from SMS firms. Stakeholders have until 3 July 2025 to respond to the consultation, leaving little time before the first expected SMS designations in October 2025, which is also when any levies will begin to be accumulated.
Levies should be split evenly between SMS firms, rather than being based on turnover or number of designations
In developing its proposed approach to the SMS levy, the CMA was guided by two key principles: fairness and administrability. The regulator wants to ensure that its levy rules are reasonable, predictable and proportionate – reflecting its ‘4 Ps’ approach (pace, predictability, proportionality, process) to supporting growth, investment and business confidence. The CMA also wants to make sure that its methodology for the rules is simple to administer for both itself and the relevant SMS firms. With this in mind, the regulator has considered three approaches to calculating the levies:
Turnover-based approach: Levies would be divided proportionately based on the annual turnovers of SMS firms;
Dividing the levy based on the number of SMS designations: Levies would be divided according to how many SMS-designated digital services each firm has (i.e. a firm with two designated digital activities would pay twice as much as a firm with only one); and
Dividing the levy evenly: Levies would be evenly divided across the number of designated SMS firms.
The CMA is proposing to adopt the third option, which it considers provides the greatest degree of predictability for firms and also avoids the arbitrary process of trying to base levies on which firms incur the most costs in operating the CMA’s regime. Ofcom recently took a different approach to its Online Safety Act (OSA) levy scheme. Ofcom opted for a combined approach of the first and second options, basing its levies on a strict revenue threshold and the annual turnover of firms’ individually designated services. This approach has received criticism for its lack of focus on firms to be designated as categorised services and for how it captures worldwide revenue, as opposed to revenue attributable to the UK.
Some SMS firms are likely to pay a larger share of the levy in its first year than others based on the CMA’s initial investigations
To calculate the levies that will be paid by SMS firms, the CMA will first need to calculate its total qualifying costs of exercising digital market functions, including staff and non-staff costs. In any chargeable year, this total will then be divided across 12 months, with the average monthly levy being split evenly between the firms. This levy will only be paid for twice yearly by firms, likely in October and then April of the following year. Interestingly, certain SMS firms are likely to have to pay more in the first chargeable year. With the first SMS designations expected in October, so far the only two firms being investigated are Apple and Google. If these two firms are designated, they will begin to be charged the levy from October, splitting the cost evenly. Any firm that is designated later on, will only then have the levy charged to them too.
