How would you like to collect a UK online sales tax of 2%, on top of collecting VAT? No? Didn’t think so, but that’s one of the ideas the Chancellor is considering. An alternative proposal is a tax on deliveries to consumers. Or maybe we’ll get both? The former is expected to raise about £2 billion a year in tax and the latter to reduce traffic and pollution.
Oh, and this tax is not an alternative to the Mandatory Delivery Charge idea that’s been mooted – that’s a separate project.
The problem is that High Street retail is a basket case, has been for years and is even more so since the Coronavirus pandemic as no one fancies crossing their fingers that wearing a mask will keep other people safe. The reality is that some don’t care and those that do (maybe as many as 60%), have absolutely no intention of revisiting the High Street any time soon.
The argument goes that the High Street pay hefty Business Rates which online retailers don’t. So to protect the high street how about we simply ding online businesses with a new UK online sales tax. This argument falls down on so many levels, not least of which that Business Rates are roughly equivalent to Council Tax for domestic properties and is based on real estate and not on sales. Online retailers do of course pay Business Rates on their premises – they just opt for premises that aren’t on the High Street and they have fewer properties to pay the tax on.
The real issue here however is that a UK online sales tax won’t be anywhere near as punitive on the large online retailers as it will on the small and medium businesses that form the backbone of the economy. It won’t hit eBay as they don’t sell anything and over half of what’s sold on Amazon is sold by a small business anyway.
It’s also worth bearing in mind that half the High Street also sell online so if they save on Business Rates on their real estate of shops they’ll pick up additional tax through the back door with the proposed UK online sales tax. The other half of the High Street is largely made up of Charity shops and they get between 80% and 100% off their Business Rates anyway.
Of course ultimately, it won’t be online retailers that pick up the tab, it will be the consumer how foots the bill as all that will happen is that prices will rise. Even if the Internet Giants such as Amazon and eBay are forced to collect the tax they’d pass it on in fees and force sellers to pass it on in higher prices. The alternative is for the retailers to be forced to collect the sales tax and let’s not forget that many small online retailers aren’t VAT registered so there’s a whole mess of the burden of administration to take into account.
It’s fair to say that there is a massive hole in public finances due to the Coronavirus and it’s equally fair to say that online retail has grown massively over the past four months.
However it’s not fair to say that a new UK online sales tax or delivery tax would save the High Street – all that’s happened during the lock down is an acceleration in the decline of High Street retail and making online prices slightly higher is not going to reverse this trend any time soon. All it will do is impose administration burdens and costs on an industry largely made up of small businesses and increase prices to consumers.
Business Rates do need to be revisited, but let’s not make it an excuse to put small online retailers out of business.
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