Sunak to delay decision on UK online sales tax, officials say

Chancellor Rishi Sunak will wait until the autumn before deciding whether to introduce a UK online sales tax aimed at levelling the playing field between high street and online retailers, according to government officials.

Sunak wants to wait until President Joe Biden’s US administration reveals whether it will support efforts to reform global digital tax rules being led by the OECD, the Paris-based organisation.

On Tuesday, the chancellor will publish a range of tax consultations alongside a summary of responses to a review of the future of business rates. Sunak is considering whether to reform the levy on commercial property at the same time as introducing a possible tax on online sales.

Business is deeply divided on the merits of an online sales tax — not least because many “bricks and mortar” retailers also sell their products online. Most high street retailers would favour a simple cut in business rates.

Sunak will delay any decisions on an online tax, and the outcome of the business rates review launched last July, until the autumn, officials said.

The chancellor’s allies said he wanted to see whether Janet Yellen, US Treasury secretary, would back a global approach to digital services taxation. The G7 summit in Cornwall in June is seen as a key moment.

“The US has shown some movement on this already, so we want to give it a bit more time,” said one UK Treasury official.

Britain introduced its own limited digital services tax, aimed mainly at large multinationals, in April 2020, which is expected to raise about £500m by the end of the parliament.

A separate online sales tax would hit many more companies. A levy of 2 per cent on goods bought online could raise £2bn each year. Business rates, meanwhile, are a vital source of revenue for Sunak, generating about £30bn.

The Treasury’s publication of responses to the business rates review will confirm that many retailers want a cut in their rates bill, rather than a new tax on online retailers.

Institute of Directors chief economist Tej Parikh said the pandemic had “only reiterated the distorted playing field between online retailers and bricks and mortar,” adding: “It is crucial the government finds a way to alleviate the burden of sky-high rates on our high street, while being careful not to undermine digital growth.”

The British Retail Consortium, a trade body, said that the key principle should be that retail is an overtaxed industry and there should be no net additional tax burdens placed upon it.

The OECD is leading a multinational negotiation aimed at modernising the international tax system via two new measures: one aims to introduce a global minimum corporation tax rate.

The other would enable countries to tax some of multinationals’ global profits based on where the company’s customers are located, even if sales are made remotely.

This measure, which will primarily hit US tech giants and European luxury goods companies, has been highly contentious and the US, under the Trump presidency, walked out of negotiations last year.

Recent moves by the Biden administration have sought to soften the US stance, but tax experts suggested the UK chancellor’s delay in deciding on an online sales tax was being driven primarily by domestic pressures rather than international concerns.

Dan Neidle, partner at law firm Clifford Chance, argued plans for a UK online sales tax were “all about revenue raising” and would not hit the same companies as the OECD’s proposals since these target multinational tech giants.

“The OECD process wouldn’t tax Ocado or Sainsbury’s because they’re domestic companies paying tax in the UK. But this would,” he said.

Heather Self, partner at Blick Rothenberg, an accountancy firm, said she suspected the Treasury was using the OECD negotiations as a “cover or excuse” for the difficulties it was having reforming UK business rates.