“The online sales tax will mean progressive retailers will be taxed twice,” warns ParcelHero’s David Jinks

Photo by Robert Cortese on Unsplash

“A year ago, chancellor Rishi Sunak hastily ditched his controversial plan to introduce a new online sales tax as many shoppers had little choice but to shop online because of lockdowns. Now, despite the fact the pandemic is not over, inflation is rising and we are all facing increased heating and energy bills, Mr Sunak is once more pushing forward with his plans.

‘The chancellor wants to raise money to fund a reduction in business rates on retail brick-and-mortar stores. Britain’s business rates raise £25 billion a year for the chancellor’s coffers and are the highest in Europe. High street retailers are understandably upset at a return to paying the full amount, following a brief payment holiday and reductions during the pandemic.

David Jinks

“Mr Sunak proposes to fund this reduction by taxing online sellers who, he argues, are likely to have a lower rate burden than physical stores. This plan is clearly flawed, however, as even the consultation document itself acknowledges the higher costs online sellers pay for delivery networks, marketing and warehousing technology. Nor does it consider that every successful high street store also sells online. In effect, the online sales tax will mean progressive retailers, with an effective website as well as physical stores, will be taxed twice.

“The government’s consultation paper outlines a wide variety of options for the new tax. These include whether it would be a 1 or 2 per cent tax on every order, or a flat fee of something like £1 on every online sale. It also discusses whether online services, as well as physical sales, would be caught in its net.

“The paper examines whether the new charge would be applied to the seller, to the online marketplace/platform on which the goods are sold, or to the consumer directly. In any of these models, you can be sure the costs will be passed onto the hard-pressed shopper.

“In our view, there is no need for an online sales tax of any kind to plug the hole in the government’s coffers. The paper claims, “There is no alternative with widespread support that would raise sufficient revenue to replace business rates in their entirety.” This ignores fast-growing support for a Commercial Landowner Levy (CLL) to replace business rates entirely.

“The CLL would be based on land value alone and would exclude premises and machinery from calculations. It would be paid for by landowners, rather than the businesses that occupy their property, so that empty or derelict buildings would be caught by the new tax system. In other words, the company that owns the valuable land the property is on and takes all the rents foots the bill.

“The discussion document is titled Sales Tax: Assessing an option to help rebalance taxation of the retail sector.” But that implies there is a difference between online sellers and high street sellers that needs rebalancing. That is a ridiculously outmoded idea. Today every retailer – from a small craft store to a huge fashion chain – should sell online as well as in-store. Evolution will leave behind those that don’t.

“As many multichannel retailers point out in the discussion document itself, if the scale of business rates reductions introduced during covid is markedly reduced, or if the reductions are targeted only at small retailers, most stores will lose more money on the sales tax than they gain from any business rate rebate. 

“The consultation runs until 20 May, 2022. We believe everyone with an interest, from retailers to consumers, should respond. An online sales tax will be another burden on internet shoppers and the Government should scrap the plans once and for all and introduce a Commercial Land Levy instead.

“To find out more about how retailers can develop their combined ‘brick-and-click’ services to adapt to future changes in retail, read ParcelHero’s study on the High Street of the future here.