Posted 3 years ago by Alison
The UK high street has been facing challenges for many years, with competition from online retailers and high business rates cited as key concerns. The coronavirus pandemic has exacerbated these issues forcing many shops to close for months before reopening in a very different landscape and offering a very different experience for shoppers.
With news of redundancies now a common occurrence in the retail world, UK Chancellor Rishi Sunak announced last month that he’s consulting on a possible online sales tax in an attempt to try to protect brick and mortar retailers. Considerations include a levy of about 2% on all goods bought online and a tax on consumer deliveries.
Estimates suggest this could generate around £2 billion, which would then be used to fund business rates reductions for retail properties. Business rates themselves could also be replaced with a capital values tax based on the value of land and the buildings on it.
While anything that looks to help the high street should be welcomed in the current climate, the consultation raises a number of questions. This includes whether adding to an already complex taxation landscape will actually benefit businesses and what the potential impact of the new levy will be on traditional and online retailers as both look for stability as we emerge into a post-COVID world?
In stark contrast to the fate of physical stores, many online retailers have experienced a boom during lockdown as consumers turned to the internet to meet their shopping needs. An online sales tax, however, would likely be passed on to consumers leading to fears that higher prices could actually deter people from spending at a time when the focus needs to be on getting the economy moving.
With many people still not feeling comfortable browsing in shops, this could result in lost spend, rather than a straight shift to high street shopping. It’s also unlikely that the revenue raised from the proposed tax would cover that generated from the current business rates system, suggesting further changes would be needed in the future.
For high street retailers, however, the proposals could offer some hope after what has been a gloomy few months – the potential impact on business rates would be particularly welcome. However, it should be remembered that this proposed tax would apply to all online sales, not just those of online-only retailers, and with many companies’ digital sales booming in recent months it could simply be storing problems for the longer term when online is expected to represent an ever-bigger share of sales. It could also hit smaller companies disproportionately highly, simply adding to their tax burden.
In addition, the government’s own consultation paper highlights the fact that the proposal could make it harder for offline retailers to adapt to changing consumer habits and establish their own online presence. Again, this would likely impact small businesses more than their established counterparts.
The proposed changes would also operate alongside any new-look business rates scheme, so it won’t necessarily lead to a reduction in liability. In fact, as retail only pays about a quarter of the overall business rates bill it would only be entitled to 25% of the benefit back, yet it would be footing 100% of the new tax bill.
Some form of online sales tax has been in the pipeline for a number of years now and it’s clear that with the added element of the coronavirus pandemic, something needs to be done to give all retailers the best chance not just to survive, but to thrive. The concern is that these changes will take time to implement and may not work in a future that is likely to see further growth in online shopping.
Consultation on the proposals are ongoing with the Treasury due to make an announcement next spring.
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