In February 2022, HM Treasury published 'Online sales tax: Assessing an option to help rebalance taxation of the retail sector'. It asks whether using indirect taxation is a viable alternative to business rates.

An Online Sales Tax (OST) may rebalance the difference between the online and high-street retail sector by being used as 'a tool' to fund business rates relief for the high street. 

This consultation is the government’s initial attempt at assessing the impacts such a tax would have.

The treasury is seeking views on the following:

  • Which goods and services should be within the scope of the tax?
  • What the definition of online sales should be and whether this should include sales made by phone or post?
  • Should there be a distinction between an online reservation and a completed online transaction for the purposes of the tax? What would that distinction be?
  • What exemptions would be appropriate? Should ‘click and collect’ or certain goods and services be exempt?
  • On whom should the OST be levied and when in the transaction should it be charged?
  • How would an OST be operated by intermediaries such as marketplaces?
  • How would the OST operate for goods purchased abroad?
  • Would thresholds or allowances be appropriate for small firms or those with a smaller online presence?
  • How would the tax be reported and any payments made?
  • What technology and systems would be required to implement the tax?

The list of questions can be found below.

Views can be submitted via the response form by:

  • Email: This email address is being protected from spambots. You need JavaScript enabled to view it. 
  • Post: Corporate Tax Team, 1 Yellow, HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ

Responses are requested from interested stakeholders by 20 May 2022.

Questions raised in the consultation


1: Would you favour a tax for all ‘remote’ sales or just a subset of ‘online’ sales?
2: How should taxable sales be defined and what would the practical implications be?
3: Are there transactions that would be particularly difficult to classify as either online or remote? What are these, and how should these be addressed?
4: Should click and collect be exempted? If so, how?
5: Should an OST be applied to all goods? Are any exemptions necessary?  If so, what are these and why?
6: How would a goods-only approach apply to takeaway food? Takeaway food?
7: Do you think that digital products should be included in an OST? How should a 'digital product' be defined?
8: How can the risk of value shifting from goods to services be reduced, for an OST that has services out of scope?
9: Are there other ways you could foresee OST being avoided? How could this be defended against?
10: Do you think some or all categories of services listed above (including any digital services) should be included in the scope of an OST? Would you add any additional services?
11: To what extent do businesses currently distinguish between their sales of goods and services in business systems? On what basis do they currently make this distinction?
12: Do you agree that an OST should be designed to exclude B2B sales?
13: Do you agree that an approach of removing all B2B transactions from scope would be preferable to applying the tax according to the individual transactions (e.g. according to the use of the item sold)?
14: What is your preference from the above or any alternative approaches to exclude B2B sales from an OST while limiting administrative burdens on business?
15: How do you think a business should be defined for the purposes of an OST?
16: Are there other types of entities or transaction types that should be out of the scope of an OST e.g. online sales by charities, public bodies or consumer to consumer transactions?

17: Do you agree that an OST would be levied on vendors?
18: How should different intermediaries that sell online on behalf of other businesses be treated with respect to an OST i.e. online marketplaces, franchises, auctioneers, agents and commissionaires?
19: Are there situations in which it is not possible to distinguish the vendor from the intermediary, or in which the intermediary plays a crucial role in the sale? How should these be treated?
20: Are there circumstances in which it would be appropriate for an intermediary to be liable for an OST, rather than the underlying seller? What are these?
21: How would an OST define UK customers?
22: Should UK-based intermediaries play a role in identifying taxable transactions or be made liable in some cases?
23: Would either a revenue or a flat fee approach have a greater distortive impact on consumer behaviour? What are the scope and design considerations that would lead to distortion caused by both models?
24: Would either approach be particularly preferable? If so, why? Are there any preferences around scope (i.e. different exclusions or exemptions) that would make one of the approaches more preferable?
25: Do you have any experiences to share of overseas' taxes on online sales using either model or similar approaches not covered above?
26: What factors should be taken into consideration in setting an allowance? How would this differ for revenue and flat-fee models of an OST?
27: What would be a reasonable OST threshold and allowance to set in order to protect small businesses while also making sure the OST generates sufficient tax revenues?
28: Do you agree that an OST threshold or allowance should apply once to all businesses under common control?
29: Do you agree the threshold or allowance would apply to individual businesses when they operate franchises or sell through online marketplaces?
30: Do you consider there to be strong arguments either for or against quarterly or annual reporting? If this hinges on any of the design options laid out in this consultation, please specify which options and why.
31: Can you provide insight into the overall burden to administer all systems and processes required to support an OST? Do systems currently allow you to identify the features listed above; if so, please provide further details on how this distinction can be made.

32: On balance, what would the impact be of an OST with business rates reductions on the scale described above, including on retailers that operate both online and offline?
33: Do the potential revenues from such a tax justify the additional administration that it would require of businesses, as well as the design complexities detailed in the previous sections?
34: To what extent do you think an OST would impact innovation, efficiency and productivity?
35: To what extent do you believe that an OST would impact consumers’ behaviour in favour of in-store retail?
36: How do you expect online retail to evolve in the coming decade and how should an OST take account of these?
37: What is the evidence for the degree of pass-through of the cost of an OST to consumers? To what extent will this vary depending on the type and value of the goods sold?
38: Do you have any data which would support the Government in making an assessment of the incidence of the tax or its distributional impacts?
39: In your assessment, what would be the distributional impact of an OST? Are there particular groups who are likely to be worse affected than others? How would this change if an OST were applied as a flat fee per transaction (or some other similar metric) versus a percentage of firms’ revenue from online sales?
40: What environmental impact might an OST have? How would its design affect an OST’s environmental impact?

External Links

UK government to assess whether Online Sales Tax could address tax imbalance reported by retail sector.

Online Sales Tax: Policy Consultation

Online sales tax: Consultation Response Form

Business Rates: HMT fundamental review

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