ATT not sold on online sales tax – and calls for rethink

The Government says the main policy aim behind an online sales tax is to ‘level the playing field’ between online and more traditional physical retailers such as those in high streets. To achieve this, the revenues from any online sales tax would be used to reduce business rates for retailers.¹ The ATT welcomes the early opportunity in a Treasury consultation, which closes tomorrow (20 May), to highlight issues and potential impacts of an online sales tax before any plans are advanced.

• ATT doubts that an online sales tax is the best way to ‘level the playing field’ between online and high street retailers.
• The tax experts at ATT warn the likely complexity of an online sales tax will prove a headache for businesses and HMRC for years to come.
• If plans for the tax do proceed, the ATT recommends a high threshold so that smaller retailers are excluded from any online sales tax.

Jon Stride, Co-Chair of ATT’s Technical Steering Group, said:

“We suggest that the Government leaves its plans for an online sales tax on the shelf and instead shops around for other options to address any perceived unfairness in the current business rates rules.

“Addressing issues regarding an existing tax, in this case business rates, by introducing an entirely new and potentially very complex tax is puzzling. It also seems like an overly complex solution to an issue which just reflects changes in customer preferences and technology development.

“It is likely that the design of any online sales tax will end up problematical for businesses and HMRC because of issues with scope and boundary, such as whether certain goods and services should be subject to the tax or exempt. Examples which come to mind include ‘Click and Collect’ orders and the treatment of overseas sellers and small-scale entrepreneurs who sell on internet marketplaces like eBay. Complexities will only increase for businesses and HMRC over time as technology and retail models evolve. It would be impossible to make the online sales tax a simple tax.”

The ATT gave its views in response to a Treasury consultation looking at the possibility of introducing an online sales tax.² The consultation does not offer specific policy details but explores the potential impacts of an online sales tax to help the Government assess the case for and against implementing such a tax. No date is given for when an online sales tax might come into effect, if it comes in at all.

Paragraph 1.14 of that policy consultation states that: ‘Tax policy should be: sustainable in view of long-term trends; efficient by incentivising economic growth and minimising distortionary impacts on markets; applied fairly, reflecting the ability to pay; simple, with costs of compliance and collection kept to a minimum; and predictable, allowing businesses and individuals to plan for the future in a stable policy environment.’

Jon Stride considers:

“The online sales tax does not meet any of the Government’s tax policy requirements because it is likely to have a distortionary impact on markets, it would not be simple, and it is questionable that it would be sustainable given the necessity to adapt to future changes in shopping patterns and technology.

“If an online sales tax is to be introduced, we strongly recommend that a high threshold is set so that smaller retailers would be excluded from the scope of the tax, and the extra costs and administrative burdens it would almost certainly bring."

Notes for editors

1. Paragraph 1.16 of the most recent Treasury Online sales tax consultation (25 February 2022) said “The Government does not see the proposal as a measure to discourage consumers from shopping online. An online sales tax is instead being considered as a measure to raise revenue from the increasing volume of online retail in the UK, with that revenue used to fund a reduction in business rates for retail properties.
2. ATT’s response to Treasury’s consultation is available to view here.