A tax to save the high street?
2 Dec 2021
A new report from DRD today flags up a wide range of uncertainties arising from the proposal for an Online Sales Tax, on which the Government is expected to consult shortly.
First floated by the then Chancellor of the Exchequer, Philip Hammond, in 2018, it is designed to address concerns that the current business rates system is unfair to bricks-and-mortar stores and that retail tax needed rebalancing.
Subsequent reviews in the following years had business leaders and politicians emphasising similar sentiments and re-proposing Hammond’s idea for a tax on online sales that could be used to lessen the burden of business rates. This called for a decision from the Government, who set a date of March 2021 to announce whether they would go ahead with an online sales tax. However, after several delays, the Autumn Budget saw Rishi Sunak report that The Treasury would only publish a consultation on the tax instead.
The Online Sales Tax Report
The new report – A tax to save the high street? – reviews what we do know already about the Online Sales Tax. Despite the Government acknowledging the unfair nature of the business rates system, it appears Ministers are not willing to part with the significant financial revenue it brings. Therefore, an online sales tax would be used to fund a reduction in business rates, but not to replace them altogether. Current evidence suggests a 20 per cent reduction in business rates, funded by a 2 per cent turnover tax on online sales.
However, this approach in itself begs a number of questions.
- Considering the tax is based on turnover rather than profit, is it likely the consumer will shoulder the burden by the tax rate simply being passed on?
- How will the Government define an ‘online sale’ in the world of click and collect and food delivery services?
- Which businesses will be affected, including those that are not domiciled in the UK?
“What is clear is that the Government has now committed itself to an Online Sales Tax as a means of permanently relieving the burden of business rates on the high street. This will have wide-ranging impacts on businesses and consumers as well, as retailers seek to shift the tax burden to protect margins.”
Jon McLeod, Partner, DRD Partnership
Jon McLeod added: “Looking ahead to the consultation paper’s release, it seems likely that we are heading for a new era of retail taxation, in which Treasury will be able to tap into new sources of income and revenue streams at will.”
*‘A TAX TO SAVE THE HIGH STREET? What to expect from the Government’s proposal to introduce an online sales tax.’ Click here to download a full copy of the report.