February 13 2023

United Kingdom Notes Outcome of Consultation on Abandoned Online Sales Tax

Source: IBFD Tax Research Platform News

The UK's Treasury has published the responses to its policy consultation on an online sales tax (OST).

The idea of the OST was that such a tax would address concerns arising from the move to a more digital economy; for example, the burden and imbalance of business rates falling disproportionately on retailers with physical properties rather than on online retailers.

Several themes arose from the consultation, such as:

  • concerns about business rates;
  • the high level of taxation in the retail sector;
  • the need for business rates reliefs;
  • the lack of a consensus on defining an OST and concerns about its complexity; and
  • whether the OST liability would be passed on to consumers.

The conclusion of the response document states: "The central challenge identified by respondents was defining taxable revenue from online sales. All proposed definitions risked arbitrary outcomes and considerable complexity for businesses, particularly in light of rapidly evolving business models."

In fact, since the consultation ended in May 2022, the UK government has considered the insights raised and announced at Autumn Statement 2022 that it had decided not to proceed with an OST. The government also announced some reforms to the business rates system.

In deciding not to proceed with the tax, the government noted that the balance of responses suggested that an OST would be complex, distortive, and would not raise sufficient revenue to fund the scale of business rate relief called for. Nor was there widespread support from the retail sector or the public in general. Support was even less pronounced when considering the different forms of OST under review. None of the models discussed would raise sufficient revenue to replace the business rates system or remove business rates liability for the retail sector. However, the government remains committed to the reform of business rates, including a revaluation and support package.