Government launches consultation into online sales tax

Chancellor Rishi Sunak first raised the proposed changes at the Budget last October.

25 February 2022

The Government has launched a consultation into an online sales tax which could ease the business rates burden on high street stores.

Chancellor Rishi Sunak promised the consultation at the Budget in October following businesses’ concerns of a potential tax imbalance between in-store retailers and those online.

Big name high street shops have been calling for an online sales tax because they see it as unfair that the bills for online-only retailers are far lower.

Business rates are paid on all commercial properties and are calculated based on the property value and the rent paid.

Rishi Sunak
Chancellor Rishi Sunak first said a consultation would take place at the Budget in October (Victoria Jones/PA)

The Government scrapped business rates payments during the pandemic to support sites shut as a result of lockdowns, although some essential retailers later repaid the amounts saved.

Lucy Frazer, financial secretary to the Treasury, said: “We want to see thriving high streets and a fair economy as we move forward from the pandemic, which is why our business rates review cut the burden by £7 billion for businesses, and committed to look at an Online Sales Tax – given the imbalance identified by some between online and in-store retailers.”

“Whilst we’ve made no decision on whether to introduce such a tax, it’s right that, given the growing consumer trend to shop online, we work with stakeholders to assess the appropriate taxation of the retail sector.”

The consultation will last for three months and ask businesses to identify which products and services would be in scope and whether it would be a flat-fee tax, based on the number of transactions or deliveries, or a revenue-based tax.

The Chancellor said at the Budget that roughly £7 billion worth of cuts to business rates would occur following a review into the business property tax.

This included the cancellation of this year’s increase in the rates multiplier and a 50% cut to rates for most retail, hospitality and leisure businesses.

Rates will also be revalued every three years, instead of every five years previously.

Federation of Small Businesses (FSB) national chairman Mike Cherry said the Government must ensure any changes come hand in hand with business rates reform.

He said: “Introducing a tax hike of the kind set out here without a radical reform of business rates would achieve the polar opposite.

“Small firms already face a host of expenses when they sell online, not least marketplace fees, card transaction charges and courier costs.

“These outgoings typically take a much bigger comparative chunk out of their bottom lines than is the case for large businesses.

“Efforts to level up the tax playing field between corporates that mostly operate online, paying low business rates on out-of-town warehouses, and community small businesses, which are up against high rates on high streets, are to be encouraged.

“But Government must avoid simply adding further cost pressures to small firms that have increased their online presence to keep the show on the road over lockdowns.”

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