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Published on 19 May 2022

Online sales tax - policy consultation


LITRG have responded to a HM Treasury consultation on a potential online sales tax

LITRG response - Online Sales Tax: Policy Consultation. Illustration of products flying out of a red bag with "online shopping" written on it.
Credit: Canva

HM Treasury launched a consultation exploring the proposal for an online sales tax (OST) as a means to rebalance the taxation of the retail sector between online and in-store retail. The consultation explores the various different forms an OST could take and explores issues such as how to define an online sale. The purpose of the consultation is to help the government assess the case for and against implementing such a tax. 

LITRG have submitted a very short response which answers one question in the consultation about a potential threshold/allowance in order to protect small businesses, while also making sure the OST generates sufficient tax revenues. 

The introduction of an online sales tax (OST) will be an additional cost, as well as increasing the administration burden on affected businesses. In our view, many small micro businesses will struggle to deal with any further changes on top of a difficult economic environment, the recent introduction of Making Tax Digital for VAT and, for some, the forthcoming Making Tax Digital for Income Tax. Therefore, if an OST is introduced, we strongly agree with the suggestion of having a revenue threshold/allowance of £1-2 million before a business is required to implement any form of OST.

If an amount substantially lower than £1-2 million is being considered, then an allowance may be preferable to a threshold. This would be more helpful to businesses which may have reasonably high turnover at levels at or around the threshold but earn low profits and may not be able to afford additional professional tax advice such as planning on when to implement an OST and ensuring ongoing compliance with a new tax.

The LITRG response can be found here

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