The idea behind introducing an OST would be to level the playing field between online retailers and their more traditional bricks and mortar competitors.  This would be achieved through using the revenues generated by the OST to reduce business rates for the retail sector.

The consultation explores the pros and cons of such an approach, as well as what an OST might look like and the key problems that would need to be explored.

How might the OST work?

No final decision has been taken yet on whether or not to introduce an OST.  However, if the Government does go ahead with the idea, the consultation indicates that it would most likely:

• Apply to revenues, not profits, from online sales
• Be levied and collected by online sellers.
• Only apply to sales from businesses to UK consumers (and not sales to other businesses or customers outside the UK).
• Include a threshold or allowance to exclude smaller sellers from its scope.
• Have quarterly filing and payment obligations similar to VAT

What are the key problems in designing an OST?

That may all sound relatively straightforward, but in reality it is anything but.

One key issue which would need to be addressed is exactly how to define ‘online sales’.  There are a wide range of retail models out there, ranging from orders placed online and delivered to the customer’s home, through social media / email ordering and click and collect to traditional mail order and phone sales.  Exactly which of these should be brought into the scope of an OST is yet to be decided.

Other areas which need to be explored include whether the OST should apply to goods only, or goods and services, and whether any specific exemptions (such as those found in the VAT system) would be needed for certain types of products.

Beyond these questions of scope, there are also a host of practical issues to consider, not least ensuring both business and HMRC software and systems would be able to cope with the new tax.

Next steps

The consultation closes on 20 May, and we can expect an announcement as to whether or not the Government will go ahead with an OST at the Autumn Budget.  If they do, the number of potential issues which will need to be ironed mean we are likely to see further rounds of discussion and debate.