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Online retailers face tax overhaul as Treasury mulls new rules, stores call for 1% sales levy

Downing Street is considering an ‘Amazon tax’ and an ‘excessive profits tax’ while brick-and-mortar retailers have voiced their concerns

Tesco PLC - Rishi Sunak mulls ‘Amazon tax’ on healthy online retailers to repay UK debt

Online retailers are facing a tax overhaul as the Treasury is mulling over an ‘Amazon tax’ and an ‘excessive profits tax’ while store chains are asking for a 1% e-commerce sales levy.

Chancellor Rishi Sunak is considering new taxes to boost the government’s cash resources so it can repay some of the debt taken out during the pandemic.

The ‘Amazon tax’ would target major online retailers that have done particularly well as part of a business rates review which will be discussed later this month, the Sunday Times reported.

Downing Street is also considering an ‘excessive profits tax’ for companies that have benefitted from COVID-19, which would also include Amazon, since it saw sales rising due to store closures.

Sunak is not expected to discuss the new proposals at the budget on March 3, which should focus on extending furlough and business rates holiday.

“We want to see thriving high streets, which is why we’ve spent tens of billions of pounds supporting shops throughout the pandemic and are supporting town centres through the changes online shopping brings,” a Treasury spokesperson told Proactive.

“Our business rates review call for evidence included questions on whether we should shift the balance between online and physical shops by introducing an Online Sales Tax. We’re considering responses now and will update in due course.”

Brick-and-mortar stores make demands

Amazon recently came under fire for paying less tax than its competitors managing a store estate.

In last week’s results, the online behemoth posted a 51% jump in UK sales to £19.3bn in 2020, but analysts estimate it will only pay £71.5mln in business rates, which is 0.37% of revenue.

Conversely, high street retailers pay around 2.3% of retail sales in tax, according to the Centre for Retail Research.

On Monday, 18 brick-and-mortar retailers including Tesco (LON:TSCO), Morrisons (LON:MRW), Pets at Home (LON:PETS), Asda and Waterstones have asked the government to impose a 1% sales tax on online rivals to “level the playing field”.

Due to the pandemic, brick-and-mortar stores have been granted a relief on the property-based business rates, but they will have to start repaying them in April.

However, a letter to Chancellor Rishi Sunak said resuming the old system "will hamper the recovery of the retail sector post-pandemic, potentially putting thousands of jobs at risk”.

The FTSE 100 grocer has been among the supermarkets repaying £1.8bn worth of business rates to the government after receiving criticism for announcing dividends while relying on state support.

Business rates are calculated by multiplying a property's rateable value by a tax rate set by HMRC.

In their letters, the retailers also asked to reduce the business rates multiplier to 35-40% of the market rent from the 50% imposed today.

“Nearly 180,000 retail job losses and around 20,000 store closures last year lay bare the scale of the challenge the industry faces,” said Paddy Lillis, general secretary at the Union of Shop, Distributive and Allied Workers.

“There must be fundamental reform of business rates. Retailers need clear and decisive action from Government to make this outdated and imbalanced commercial property tax fairer. An online sales levy set at 1% would raise around £1.5 billion, which could fund a cut in retail business rates of around 20%.”

Shares in online giants boohoo (LON:BOO) and ASOS (LON:ASC) dipped 3% to 353.2p and  2% to 4,820p respectively in the early afternoon.

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