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Could an online sales tax help economic recovery?

With high street retail shops being closed due to the Covid-19 pandemic, online shopping has seen a big increase in sales over the last 12 months.

Official figures show that sales online increased by 46% in 2020 compared with sales in 2019, making up about 30% of overall retail sales in Britain – up from about 20% in 2019.

There has been a recent talk about the Treasury exploring options to introduce an online sales tax to help UK government pay back debts incurred from supporting industries through the pandemic, and last week The Sunday Times leaked Treasury emails confirming tech firms and retailers have been summoned to a meeting to discuss such a tax later this month.

This comes as 18 UK supermarkets have demanded a permanent reduction in business rates, which retail, leisure and hospitality firms have not paid for the current financial year.

A Treasury spokesperson said:

“We want to see thriving high streets, which is why we’ve spent tens of billions of pounds supporting shops throughout the pandemic and are supporting town centres through the changes online shopping brings.

“Our business rates review call-for-evidence included questions on whether we should shift the balance between online and physical shops by introducing an online sales tax. We’re considering responses now.”

Such an online sales tax could possibly involve two new taxes: a levy on all goods bought online, and a tax on consumer deliveries.

Business groups such as British Retail Consortium are not in favour of this measure as they believe it would hit high street retailers who have online operations, and could result in higher costs for shoppers.

Helen Dickinson, chief executive of the British Retail Consortium, said:

“The key to reviving our high streets is fundamental reform of the business rates system and we oppose any new taxes that increase the cost burden on the industry which is already too high.

“Economic recovery after Covid will be powered by consumer demand – the Chancellor should ensure he doesn’t introduce any new taxes that stifle this.”

That being said, several big retailers with online operations have previously backed the launch of an online sales tax; Tesco, for example, has called for a one percent sales tax to be levied on Amazon and other digital retail giants as the pandemic continues to hit high street shops.

According to the Sunday Times, Chancellor Rishi Sunak is supportive of such a move but we’re not expecting an announcement in the next Budget on 3 March – instead, it’s likely that a decision will be made in autumn after the economy has had time to recover during spring and summer.

Newspaper headlines suggest Sunak will instead look to extend furlough and the business rates holiday to continue to support businesses.

If you have an online sales arm and want to know more about what this proposed tax or other tax changes expected in 2021 might mean for your business, get in touch with one of our advisors today.

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