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Chancellor Rachel Reeves is considering a tax hike for online retail giants like Amazon in an effort to level the playing field for high street competitors.
Big online outlets benefit from business rates, which are a tax based on the size of a firm’s stores. The tax hits physical shops harder and the edge given to online rivals has been blamed for the slow death of town centres around the country.
Ms Reeves, who will unveil her maiden Budget next week, is thought to be considering a wider review of Britain’s patchwork of complex property taxes, with an increase in business rates for internet shops being reviewed, although any tax rise could hit online prices.
The British Retail Consortium, the industry’s trade body, welcomed the idea of reform but cautioned against the idea of simply punishing online players.
Tom Ironside, Director of Business & Regulation at the BRC, said: “It is clear is that the retail industry is paying far more than its fair share of tax, paying 7.4 per cent of all business taxes, a share 1.5 times greater than its share of the overall economy.
“Of retail’s £33bn total tax bill, one-fifth is made up of business rates – with the industry paying double that of any other sector. These problems cannot be resolved by pushing business taxes from one bit of retail to another – if the Treasury seeks to keep any challenges cost-neutral, it should look outside of retail.”
Cuts to business rates have been resisted by previous governments, in part because it helps fund local authorities to the tune of £13bn a year.
The Conservative government consulted with the industry in 2021 on introducing an online sales tax but rules the move out a year later, saying it would be “complex, distortive, and would not raise sufficient revenue”.
In other countries, rather than paying a rate based on property value, businesses pay a local corporation tax on their profits.
Germany’s local business tax, based on profit, raised €55.9bn in 2018, according to research by Parliament.
A move to taxing local profit would ease the pain for struggling shops and apply pressure to dominant players, but it could also let online giants off the hook, said Paul Monaghan, chief executive of the Fair Tax Foundation.
Many of the biggest online outfits book their profits abroad, reporting high revenues but small profits in the UK. Mr Monaghan suggests a small tax on sales to avoid this problem, raising perhaps £2bn a year.
“There’s a consensus out there that business rates need to be reduced on bricks and mortar retail to invigorate the high street. But that will cost a lot.
“There’s a fear that in taking on some of the online businesses it could spark a trade war with the US because many of these companies are US owned.
“The most plausible way through this would be an online sales tax,” he added.
He also suggested closing a customs tax loophole that favours Chinese marketplaces like Temu and Shein.
While most retailers ship stock wholesale to the UK and pay customs duty, these companies often send products directly through the mail from factories in China. Doing so often triggers no customs charge. In the UK the threshold is £135, while items costing £39 or less face no import VAT charge.
A spokesman for the Treasury said: “We do not comment on speculation around tax changes outside of fiscal events.”
Amazon declined to comment. Shein was approached for comment. A Temu spokesperson said: “Temu follows the laws and regulations in all markets we serve, including customs rules that apply equally to all businesses. Our growth is driven by our direct-from-factory model, which cuts out layers of middlemen and their associated markups. This is the primary factor behind our competitive pricing, not de minimis policies.”