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UK 2% online sales tax proposal

  • Feb 8, 2021 | Richard Asquith

The UK is reported as considering a 2% online sales tax on ecommerce sellers and marketplaces to help support struggling high-street retailers. This could mean a turnover tax on online sales to UK consumers, and be on top of the 2% Digital Services Tax launched April 2020. Such as tax has many challenges, and would likely be passed on to consumers.

The UK Treasury is looking how to tap into the boom on ecommerce trade since the start of the COVID-19 crisis. Non-food online retail has expanded from 31% to 46% of all UK online ecommerce in 2020. The UK is also said to be looking at a windfall levy on ecommerce, food delivery platforms and supermarkets that have prospered during the pandemic.

Whilst appealing as a popularist measure to prop—up the high-street, such an online sales tax would be problematic:

  • Experience of the DST has shown that such levies generally are immediately passed on to shoppers, and not the retailer as intended. It is therefore a effectively VAT, and is therefore doubling up on tax complexity
  • There are problems on compliance and simple avoidance risks, particularly for non-resident online retailers. It is not clear how it would be levied with retailers that are both online and in the highstreet. How would 'click and collect' work for such a tax?
  • The high street may benefit from other, more targeted measures, such as the upcoming Business Rates tax review
  • The revenues from such a tax would likely be small, and of questionable cost-benefit value given the complexity of application for HMRC and taxpayers
  • On the windfall levy, effectively backdating a corporation tax rise to the start of 2020, this creates uncertainty for future investment confidence

Delivery Tax

There could also be a delivery tax to reduce traffic and pollution. This may be chargeable by the seller or delivery agent.

This is in addition to the UK's Department for Transport position statement for a mandatory delivery charge on ecommerce sales. This has similar aims to plastic bag taxes: nudge consumer behaviour towards more environmentally friendly behaviours such as reducing buy and returns, or encouraging more efficient bundling of multiple purchases.

Need help with your UK VAT compliance?

Researching UK VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade. 

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He can be contacted at: He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.
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