Online sales tax: assessing an option to help rebalance taxation of the retail sector
Executive summary
- AAT has repeatedly stated that the business rates system is broken and that fundamental reform is needed. The imposition of an online only sales tax, that will not replace business rates but will instead provide some funding for rates to be reduced for some retailers, would not be an effective solution.
- If government believes warehousing and distribution centres are not sufficiently taxed then it should look at addressing this issue directly rather than introducing an online sales tax. Although as noted above, the rationale for doing so is likely to be weakened by the April 2023 revaluation.
- Defining an online sale is already problematic but will become increasingly challenging in the future. As such an online sales tax in isolation will not only be difficult to implement, but it will also be open to abuse.
- Noting the uncertainty around whether or not to include services in any future online sales tax or if this should only apply to goods, AAT believes that a goods only approach would be preferable.
- AAT does not support the introduction of an online sales tax but if it is to occur, whilst there may be sound policy reasons for exempting business to business sales from a new online sales tax this will almost certainly lead to evasion.
- If government does proceed, proposals to limit an online sales tax to UK consumers and not overseas buyers of UK goods appears to undermine the credibility and fairness of such a tax.
- If it is to occur, it must be on the basis of revenue ie charged as a percentage rather than as a flat fee. This is to ensure the tax is progressive.
- If it is to occur, small businesses operating below the VAT threshold (currently £85,000) should be exempt.
- Recognising that many retailers now sell both online and offline, the impact of an online sales tax is likely to be broadly negative for most UK retailers. The only businesses likely to benefit are small businesses who do not sell anything at all online. Given there is a possibility of exempting millions of small businesses from the online sales tax anyway, this begs the question as to whether or not it is worthwhile proceeding along the proposed path, especially when factoring in the likely impact of the April 2023 business rates revaluation referenced in the above introduction.
- There is much debate about the environmental damage created by online sales that necessitate delivery. However, an online sales tax that encouraged higher levels of instore shopping would probably lead to increased travel movements, increased pollution and increased congestion depending on the number of items purchased and the last-mile travel method.
Related consultation responses
Raising Standards in the Tax Advice Market: AAT's submission to HMRC
AAT argues for mandatory membership of professional bodies for all paid-for tax advisers to address the high levels of poor-quality tax advice in the UK.
Review of the Office of Tax Simplification
We would like to see the OTS given additional resources and see it become involved in the development of new taxes rather than just existing tax reform.
