Online Sales Tax consultation

*Update: Following consultation, the government has decided not to introduce an OST, an idea put forward by certain stakeholders in the context of Business Rates reform. The government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models. A response to the OST consultation will be published shortly.

HM Treasury is 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. Questions exist over many areas of any potential OST including the different forms an OST could take and how to define an online sale reflecting the range of transaction, delivery, and collection options.

This consultation explores these issues and the potential impacts of an OST to help the government assess the case for and against implementing such a tax. The deadline for responses is 20 May 2022.

For many charities, their current online sales will be limited, but this could well be an area of growth in the future.

Following previous representations by CTG and others the Government recognises the potential impact on the charity sector and asks:

Question 16: Are there other types of entities or transaction types which should be
out of scope of an OST e.g. online sales by charities, public bodies or consumer to
consumer transactions?

CTG would welcome feedback from charities on the extent of their current online sales and any plans to expand in this area. It would also be useful to know whether any sales are currently managed by the charity or a trading subsidiary and any other feedback on the questions raised in the consultation.

Full list of consultation questions

  • Question 1: Would you favour a tax for all ‘remote’ sales or just a subset of ‘online’ sales?
  • Question 2: How should taxable sales be defined and what would the practical implications be?
  • Question 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?
  • Question 4: Should click and collect be exempted? If so, how?
  • Question 5: Should an OST be applied to all goods? Are any exemptions necessary? If so, what are these and why?
  • Question 6: How would a goods-only approach apply to takeaway food?
  • Question 7: Do you think that digital products should be included in an OST? How should a “digital product” be defined?
  • Question 8: How can the risk of value shifting from goods to services be reduced, for an OST that has services out of scope?
  • Question 9: Are there other ways you could foresee OST being avoided? How could this be defended against?
  • Question 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?
  • Question 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?
  • Question 12: Do you agree that an OST should be designed to exclude B2B sales?
  • Question 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)?
  • Question 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?
  • Question 15: How do you think a business should be defined for the purposes of an OST?
  • Question 16: Are there other types of entities or transaction types which should be out of scope of an OST e.g. online sales by charities, public bodies or consumer to consumer transactions
  • Question 17: Do you agree that an OST would be levied on vendors?
  • Question 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?
  • Question 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?
  • Question 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?
  • Question 21: How would an OST define UK customers?
  • Question 22: Should UK-based intermediaries play a role in identifying taxable transactions or be made liable in some cases?
  • Question 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?
  • Question 24: Would either approach be particularly preferable? If so, why? Are there any preferences around scope (i.e. different exclusions or exemptions) which would make one of the approaches more preferable?
  • Question 25: Do you have experience to share of overseas’ taxes on online sales using either model, or similar approaches not covered above?
  • Question 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?
  • Question 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?
  • Question 28: Do you agree that an OST threshold or allowance should apply once to all businesses under common control?
  • Question 29: Do you agree the threshold or allowance would apply to individual businesses when they operate franchises or sell through online marketplaces?
  • Question 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.
  • Question 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.
  • Question 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?
  • Question 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
  • Question 34: To what extend do you think an OST would impact innovation, efficiency and productivity?
  • Question 35: To what extend do you believe that an OST would impact consumers’ behaviour in favour of in-store retail?
  • Question 36: How do you expect online retail to evolve in the coming decade and how should an OST take account of these?
  • Question 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?
  • Question 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?
  • Question 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?
  • Question 40: What environmental impact might an OST have? How would its
    design affect an OST’s environmental impact?