Consultation on Online Sales Tax released

HMT has opened a consultation on whether the UK should implement an Online Sales Tax but no decision on this has yet been made.

HMT has opened a consultation on whether the UK should implement an Online Sales Tax

HM Treasury has released a consultation on whether the UK should implement an Online Sales Tax (OST). No decision on an OST has yet been made, and the Government wants to hear business’s views as these will help shape the final outcome. An OST, if adopted, would not be a revenue raiser but would instead rebalance the tax system by funding business rates relief in England for the retail sector and fund the block grants of the devolved administrations in the usual way. It is fair to say that it would not be straightforward as many questions would need to be answered around its form, rate and scope and even the basic point of defining an online sale, given the range of ordering, payment, collection and delivery options that are available to the online shopper. The consultation will run until 10am on 20 May 2022. We very much encourage affected businesses to take this opportunity to respond.

The Government is considering whether the tax system needs to respond to the changing way we shop, particularly the growth in online purchases that can be made without reliance on high value rateable premises. It wants to test the arguments for and against an OST. Note the OST is different from the Digital Services Tax.

The consultation is divided into sections about the scope of the tax, its design and the impact if it was implemented – the latter being very much dependent on the first two. Internal and external estimates of the amount the tax might raise, vary wildly as one might expect, but none are anywhere near the £7.5 billion annual business rates revenue figure from retail properties in England.

This is a long document and there are 40 questions in total. There are a lot of practicalities to consider – should the tax be limited to goods or include services, should it just cover business to consumer sales to UK customers, should it be a percentage of the sale price or a flat fee, what should the threshold be, who would be liable, how would it interact with VAT, how should returned purchases be dealt with, what system changes would be needed, how burdensome would these be and so on.

It is important for businesses to understand the potential implications an OST may have on their operations. The consultation document poses more questions than answers at this stage which is not surprising as there are important design principles that need to be considered.

The tax has both supporters and opponents. Those likely to be affected are encouraged to respond to the consultation and make their views heard.