The UK Government has recently published an early-stage consultation which explores the case for an Online Sales Tax (OST). The pledge was made during the Autumn Budget to examine the potential benefits and disadvantages of the tax. No decision has yet been made, but some of the key arguments have been clarified.

The consultation was carried out in response to a changing retail market, where consumers now buy significant amounts online. According to the Office for National Statistics (ONS), at the height of the pandemic in January 2021, almost 40% of all retail sales in the UK were made online.

Despite bricks and mortar stores being fully reopened for almost a year, the percentage of online sales remains at around 30%, compared to 20% in 2019. Experts predict that the growth is set to continue, as shoppers are now more comfortable with choosing and ordering products online.

This has led to some in-store retailers claiming that the business rates they pay are an unfair imbalance, as their online rivals are currently exempt from any form of sales tax. However, many retailers have both an in-store and online presence, and are against an OST.

Lucy Frazer, Financial Secretary to the Treasury said: “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.”

She added: “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.”

The eventual outcome of the consultation may be influenced by the steeply rising cost of living in the UK, with the government unwilling to add to the burden faced by tax payers. A further consultation into the issue is set to run until 20 May 2022.

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