By Altus Group | February 8, 2021

It really came as no surprise over the weekend that Treasury officials are weighing up plans for an online sales tax in a bid to re-balance the scales between booming online businesses and struggling high street firms. 

The Government committed to conducting a ‘fundamental review’ of business rates and published the terms of reference for that review at the Spring Budget in 2020.

The call for evidence sought views on how the business rates system currently works, issues to be addressed, ideas for change, including an online sales tax, with business hoping for meaningful reform at the Spring Budget on 3rd March. 

Amazon’s sales in the U.K. rose by 51.1% during the 2020 calendar year to £19.4 billion as those in lockdown became more reliant on home deliveries whilst non-essential shops were closed for significant periods of time. 

In comparison, retail sales in physical shops across the U.K. fell 10.3% to £285.76 billion. Had it not been for the holiday, writing off bills for shops, the business rates to turnover ratio would have risen to 2.9% up from about 2.3% before the pandemic. 

Whilst not a recipient of the holiday and agreeing to repay around £2 million for relief received for 9 Whole Foods supermarkets it acquired in 2017, total rates liabilities at the start of the 2020/21 financial year for Amazon in the U.K. were around £71.5 million. Whilst that was up from the £63 million it confirmed paying in 2019, it gives a comparable business rates to turnover ratio of just 0.4%. 

Business rates are tax on physical property, calculated by reference to rents paid on a certain date that support the long-term stability of the economy funding public services in a less distorted way than other taxes. They are difficult to avoid and easy to collect and, for these reasons, are the Government’s preferred method of taxation for non-domestic property.

Business rates are indeed the appropriate method for taxing businesses’ different requirements for their commercial property needs. Punitive rates for warehouses or distorting the system isn’t the answer in addressing the structural issues facing our high streets.

Whilst pure online retailers pay market rents for their facilities for which the commensurate tax is due, traditional bricks and mortar retailing is property intensive leading to a larger tax to turnover ratio which, if left unchecked, could lead to the substantial extinction of the high street and erosion of local communities.

An online sales tax is reportedly likely to form the centrepiece of efforts to cut the U.K.’s debts in the Autumn’s fiscal statement as part of what is expected now to be a delayed response to the review. 

Whilst the Government is right to formulate a coherent long term approach to taxing the digital economy, in my view, rather than paying down the deficit, the additional revenue raised should be ring-fenced which could, in turn, be used to lower the multiplier delivering upon the Government’s manifesto pledge to reduce the overall burden of business rates.

Despite that pledge at the 2019 General Election, current forecasts by the Office for Budget Responsibility put the U.K. yield from business rates at £32.1 billion for the financial year ahead rising by 9.97% in 2025/26 to £35.3 billion. 

Robert Hayton is U.K. President of Property Tax at the real estate adviser, Altus Group

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