The Online Sales Tax

The Government recently ran a consultation on the proposal to introduce an Online Sales Tax (OST). This ran until the end of May and has now closed whilst the Government reviews the responses and decides on the next steps.

The consultation was put in place as part of the Government’s initiative to support highstreet retailers through ‘rebalancing’ the taxation of online and in-store retailers. But many retailers are against this move, with industry experts stating that it may never actually achieve its purpose.

What Is An OST?

The business rates system has long been a heated subject, with many calling for the system to be completely overhauled. In-store retailers (also known as ‘bricks and mortar’ businesses) are said to be unfairly disadvantaged when it comes to taxation because they’re taxed far more than their online competitors – something which has only been exacerbated by the pandemic. In fact, recent research suggests that highstreet retailers are currently paying a whopping 755% more in business rates compared with online competitors.

In order to ‘rebalance’ retail taxation, the Government is considering implementing an OST which would see retail businesses taxed more fairly. This would be a completely new type of tax and therefore as of yet there are no concrete foundations on what this tax would look like. For now, the Government needs to address key fundamental questions as to how the tax would work in given scenarios.

Why Are Many Retailers Against It?

Many retailers are against the idea of an OST, particularly those who have both a highstreet and online shop. Online sales became a lifeline to the retail industry during the pandemic, and shopping habits have continued to change because of this. The retail industry is only just beginning on its journey to recovery and so additional taxes could have catastrophic consequences – especially for small independent businesses that simply don’t have the extra resource available to pay additional taxes, meaning many could therefore be discouraged from adopting online methods which really isn’t plausible in today’s market.

Many industry experts have also shared their concerns over the proposed OST. They argue that this would not fix the issues surrounding business rates but would simply add another tax to the mix. In addition, it’s likely that this tax would inevitably be passed on to the consumer, something which will be very unwelcome during the cost-of-living crisis and will ultimately then affect both consumers and retailers. It also raises the question on whether it’s fair or ethical to charge a consumer a different price for the same product depending on how they bought it.

What’s more, the consultation itself outlines the possible issue that reduced business rates for in-store retail shops could actually drive up rents, meaning that in-store retailers might not actually see a benefit from this proposed rebalance.

What Are The Fundamental Questions That The Government Needs To Address?

The Government itself admits that an OST wouldn’t be straightforward to implement, and that trying to distinguish what type of transactions fit into ‘online’ sales could prove quite difficult. For example, will email and telephone orders be in scope? And what about click-and-collect services where you order online but collect in store? What goods and/or services will be in scope, and will there be any exemptions? How will the tax be calculated and paid?

These are just some of the questions that the Government will need to review in order to decide whether the use of an OST would be viable or not. You can find out more about the key questions the Government will consider, along with more details about the tax itself, via the Government website.

What Other Initiatives Could Be Considered To Help Highstreet Retailers?

The Government has already said that it’s committed to supporting highstreet retailers, but instead of implementing an OST, are there alternative initiatives that could be considered instead? Tax breaks or grants to help highstreet shops evolve and move forward should be considered, along with various other options to entice shoppers back to the highstreet, such as free parking or improved parking facilities, or other incentives. In speaking about the OST, techUK suggests that the Government should focus on supporting highstreet retailers to digitise their processes and use technology to evolve their businesses, rather than introducing an OST.

If you’d like to find out more about the Government’s consultation, take a look at its OST policy documents. And finally, what are your thoughts or concerns surrounding the idea of an OST? Did you voice your opinions during the consultation? Let us know!