On 27 October, Chancellor Rishi Sunak will unveil his Autumn Budget. Speculation is already mounting that he will introduce an online sales tax.
So how would an online sales tax work? And how could it impact you? Here’s what you need to know.
Autumn Budget: How would an online sales tax work?
An online sales tax would be one of the first of its kind anywhere in the world. If introduced in the Autumn Budget, the tax would apply to online sales made in the UK.
While details on the rate are thin on the ground, anything above 1% would mean the Treasury would be set to trouser over £1 billion a year. That’s because online sales have rocketed in the UK over the past few years.
According to Statista, the value of online sales in the UK surpassed £69 billion in 2018, growing to £76 billion by 2019. Its 2020 data shows that the pandemic had a big impact on online sales too. British consumers spent a record £99 billion online last year.
If the chancellor announces an online sales tax later this month, it would probably apply from the 2022/23 tax year. The tax is likely to be charged at source, limiting the options for buyers who’d prefer to find a way around the tax.
Why introduce the tax in the Autumn Budget?
It’s no secret that the government spent billions of pounds on numerous support schemes following the economic fallout from Covid-19. The cost of the job retention scheme – also known as ‘furlough’ – has cost UK taxpayers £68.5 billion alone.
However, as UK vaccination rates are high, deaths from the virus are low and many support schemes have now ended, many believe that the Autumn Budget presents the right opportunity to raise taxes to help the public purse.
With the next general election set for early 2024, many also feel that the government doesn’t have much longer to hike taxes. That’s because in the Autumn Statement prior to an election (in 2023), many feel that the government will have to be generous with their spending in order to court public favour.
How would an online sales tax impact online retailers?
The expectation is that an online sales tax would apply to all online sales in the UK. As a result, big online retailers such as eBay, ASOS and Amazon are certain to feel the force.
Some critics of online-only retailers have previously argued that many simply don’t pay their fair share of tax. For example, despite making over £20 billion worth of online sales in the UK during 2020, the world’s largest online retailer, Amazon paid just £492 million in tax. Many believe this figure is too low.
It’s also been well documented that some online retailers legally avoid tax by shifting profits overseas. Many believe that this is also unfair.
However, perhaps the biggest reason why many believe an online sales tax is desperately needed in the upcoming Autumn Budget is to counteract the current imbalance between online and offline retailers with regards to business rates. That’s because retailers in the UK with bricks and mortar stores have to pay hefty business rates, while online retailers only have to pay a fraction of these costs.
While many retailers with bricks and mortar stores may be happier if these taxes were reduced, it’s understood that this isn’t on the chancellor’s table for the Autumn Budget.
How would an online sales tax impact me?
It almost goes without saying, but an online sales tax will probably lead to higher prices for online goods. While it’s possible online retailers could swallow the new tax, many already run with wafer-thin margins. Therefore, adding the tax to online sales prices is a far more likely outcome.
As a result, if you’re a keen online shopper, higher prices may be just around the corner.
Even if you do shop mostly in physical stores, it’s worth knowing that an online sales tax could impact in-store pricing too. That’s because many offline retailers are limited regarding how much they can charge for goods due to prices offered by online rivals. Should these rivals be forced to raise prices, then this gives offline retailers room to increase their own prices, creating a domino effect.
It’s also worth understanding that an online sales tax could impact those who occasionally sell online. That’s because it’s possible the tax will apply to all online sellers, not just large retail giants. As a result, if you sell online goods over the tax-free trading allowance, you too could be impacted by an online sales tax.
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