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ICAEW responds to consultation on proposed UK online sales tax

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Published: 25 May 2022 Update History

Taxation of the digital economy and e-commerce transactions should be considered without reference to the debate around the imbalance of business rates for ‘bricks and mortar’ businesses, says ICAEW.
Within its online sales tax (OST) consultation, HMRC Treasury is very clear that a decision has not been taken about whether to implement an OST or not. The consultation process is therefore very much about seeking views around the proposal, to inform a decision about how to take matters forward.

ICAEW’s representation, published as ICAEW REP 40/22, expresses concern that the basis of the consultation appears to focus on addressing the imbalance of the costs of business rates borne by retailers with physical premises, versus the lower establishment costs of e-commerce sellers. This will likely make the debate more complex.

A s a starting point, ICAEW suggests that the policy discussion could look at how online businesses should be taxed. This would likely facilitate a more holistic look at the tax system and creates fewer constraints.

ICAEW’s representation also highlighted significant uncertainty that an OST would address the imbalance created by the business rates system for retailers with a physical presence. Many retailers now operate a hybrid model with some online sales and some high street shops.

For them, the savings on business rates may not even match the increased tax burden from an OST. Indeed, some retailers may find themselves worse off. This could be exacerbated if landlords increase rents following the reduction in business rates. It means that any tax savings would effectively be passed to the landlord.

ICAEW also voiced concern around the complexity that a new tax regime would bring, at a time when there is already substantial change in the pipeline. Given HMRC’s commitment to becoming one of the most digitally advanced tax administrations in the world, this demand on resources is likely to be high to ensure appropriate reporting and software procedures are in place.

Implementing another tax regime will require significant investment from businesses to meet their compliance requirements. HMRC would need to ensure that businesses have clear guidance and enough time to meet their obligations. Without this direction, many will struggle to accurately report an OST. This issue would disproportionately affect smaller businesses that do not have large in-house tax teams.

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