Government mulls extending 2% online sales tax to all small businesses

The Treasury is considering extending a 2% online sales tax to all small businesses, according to a Business Rates Review interim report

The Government may extend its proposed 2 per cent online sales tax to all small business – both online and bricks and mortar.

It’s been urged to extend online sales to high street sales that have been made online, such as travel, accommodation and software.

Around £100bn a year is spent with retailers, and the value of all online sales excluding financial services is £700bn, the Treasury said.

This proposal emerged in the interim report on the Business Rates Review, to which the Chancellor is due to respond at the autumn Budget. The report – a summary of business responses – was published on ‘Tax Day’, a new arrangement at which consultations and reviews are released after the Budget.

The Treasury is under more immediate pressure to cut business rates, which raise £30bn a year but have been blamed for harming the high street by penalising physical retailers.

HM Treasury has published a host of consultations and plans to make tax work in the modern day, while trying to recover £31bn every year which is lost to flaws in the current tax system.

>See also: Kevin Hollinrake calls for abolition of business rates

“Respondents stressed that uniform business rates reductions would be provided to all ratepayers across industries, whereas the online sales tax would just be paid by online retailers, which they considered unfair,” the interim report said.

There was no consensus on the online sales tax from respondents as there were strong responses from both sides.

In response to the report, John Webber, head of business rates at Colliers, said: “Everything that’s been said has already been said on all previous consultations. It’s like Groundhog Day.”

“We say what we think from what we see in the marketplace and from our clients, we submit evidence, the Government produces a report and then usually nothing happens. I know the Government is planning to reveal its thoughts in the autumn, but I can’t understand why they can’t reveal them now when the evidence is so unchanged.

“But it’s worse than that. At this stage we don’t know if the Government is going to do anything to address the 400,000 office-based businesses who are appealing their business rates in the largest MCC caused by a single event in rating history.”

>See also: Business rates appeal talks halted as thousands of firms wait for outcome

Nic Redfern, UK finance director of NerdWallet, said:The consideration of a 2 per cent tax on online sales is a noteworthy moment. For one, it acknowledges that the business rates system is no longer fit for purpose. It also recognises the fact that online retailers are, in general, outperforming traditional high street sellers.

“One thing is for certain: it will take more than a 2 per cent online sales tax to level the playing field between online and high street shopping. Further, bricks and mortar retailers will need plenty more financial support and reform in the months ahead if they are to bounce back from the effects of Covid-19. It is one key area of the economy that we must monitor closely in 2021.”

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.

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Business rates