Online sales tax consultation

The government has published a consultation document to assess the case for and against a new online sales tax. The government is not yet committed to introducing an online sales tax, and the results of the consultation will therefore have an impact on whether such a tax is introduced rather than the design of the tax.

The proportion of retail sales that have taken place online has been increasing for many years, and the pandemic has exacerbated this trend. There is concern that retailers with physical premises face unfair tax burdens because of the level of business rates that they pay. If an online sales tax were introduced, the intention would be for the revenue raised to be used to fund a reduction in business rates for retail premises. The intention would not be to change behaviour by discouraging consumers from shopping online.

The consultation document raises questions on many different aspects of a possible tax including:

• Whether it would encompass internet sales only or a wider range of “remote” sales (including, for example, those made by email or automated telephone lines);
• How it might apply to “click and collect” purchases;
• Whether it would only apply to goods (where the comparison between online and in-store sales is clear, but where there could be challenges in determining whether a supply is a good or a service and in apportioning costs in bundled goods and services) or whether it would also apply to services (and if so which types of services);
• Whether it should extend to business-to-business sales or whether it should be limited to sales to consumers (and if so how could these be identified);
• What responsibility might online marketplaces and intermediaries have;
• Whether the tax would be based on revenue or some other factor;
• Whether there would be a threshold or allowance below which the tax was not charged;
• How frequently would returns and payments be made.

The consultation period ends in May and we expect to hear the government’s conclusions in the autumn. If you have any questions regarding this article, please contact a member of the tax team.