Shoppers spared new online sales tax – for now

Mike Cherry, national chairman of the Federation of Small Businesses, said new taxes should be avoided. “Small firms already face a host of expenses when they sell online, not least marketplace fees, card transaction charges and courier costs. 

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.”

Ministers have already completed a review of the tax system which “concluded that the business rates system should not be ripped up, as rates fund vital local services and there is no alternative with widespread support that would raise sufficient revenue to replace them”.

Business rates will bring in almost £30bn in the coming financial year. Replacing them would require finding taxes elsewhere amounting to the equivalent of 4pc on VAT, or 5pc on the basic rate of income tax.

Nonetheless, “some retailers with a stronger bricks and mortar presence consider that their sector is overburdened by business rates relative to online competitors”, the consultation said, while acknowledging some businesses have both in-store and online operations.

The consultation, which will last for three months, asks whether an online sales tax should be implemented, and, if so, how it would work.

Potential problems include the administration of business rates, which is devolved to the UK nations’ administrations, while identifying the mode of sale could also be tricky when orders can be made in-store via an app, or through other remote methods including phone and postal orders.

The tax status of click-and-collect purchases, with goods bought online but picked up in store, may also be tricky to define.

There is already a separate digital services tax that came into force in April 2020 and takes a 2pc slice of the revenues of tech companies such as search engines, marketplaces and social media sites, bringing in about £600m a year.

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