How would an Online Sales Tax affect your business?

The UK Government is set to assess whether to introduce an Online Sales Tax (OST) as a solution to the tax imbalance in the retail sector.

Why is there a tax imbalance?

Throughout the pandemic, the retail sector was heavily impacted by lockdowns and lack of confidence reducing footfall.

Consequently, consumers opted to shop online which led to online sales rapidly increasing.

In an attempt to assist retailers, the Government reviewed Business Rates resulting in a reduction in the rates by £7 billion, over the next five years, for businesses in the retail, hospitality and leisure sectors.

For 2022-23, businesses are expected to receive support worth almost £1.7 billion.

How would an Online Sales Tax impact your business?

Before an OST could be introduced, the Government would first need to define what classifies as an online sale.

One example of a possible dilemma could be how to classify goods ordered online but paid for in store, as well as ‘click and collect’ orders.

If your business’ transactions were deemed to be online, then sales could be subject to either a flat-fee charged on the number of transactions / deliveries or a revenue-based tax (in the case that the tax was introduced).

There has been no decision on whether to implement OSTs yet, however in the circumstance that an OST was introduced, the revenue yielded would be used to fund business rate reliefs for retailers with properties in England.

Lucy Frazer, Financial Secretary to the Treasury commented on the consultation:

“We want to see thriving high streets and a fair economy as we move forward from the pandemic, which is why our business rates review cut the burden by £7 billion for businesses, and committed to look at an Online Sales Tax – given the imbalance identified by some between online and in-store retailers.

“Whilst we’ve made no decision on whether to introduce such a tax, it’s right that, given the growing consumer trend to shop online, we work with stakeholders to assess the appropriate taxation of the retail sector.”

Find out more about the consultation at

For advice with related matters, contact our experts today.