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GUEST COMMENT Is it time for online retailers to face business rates?

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As physical shop footfall is slowly being decimated by online footfall, the growing need to introduce an Online Sales Tax is rising to the top of the business rates agenda. As the schism between physical and online sales represents a serious imbalance, the natural changing of the guards is occurring as popularity for online platforms is increasing at a rapid rate. Stimulated by the coronavirus pandemic, the transition is inevitable as online shops overtake high street stores due to minimal overheads, low maintenance and greater consumer accessibility. 

Release of interim business rates report 

As part of the government’s 10-year tax administration strategy and view to modernise the tax system, the government launched a consultation to seek views on the current business rates framework. The Call for Evidence for the Fundamental Business Rates Report invited organisations to share their understanding of issues, ideas for change and suggestions for alternative taxes, including online taxes. 

This consultation ran from 21 July 2020 to 31 October 2020. The final report on the Business Rates Review is due to be released in Autumn 2021, however, the interim report published the terms of reference for review at the Spring Budget 2021. The objectives for the review as stated in the terms of reference are:

  • reducing the overall burden on business
  • improving the current business rates system
  • considering more fundamental changes in the medium-to-long term

The report will also explore recommendations put forward by the Treasury Select Committee in its 2019 report to consider alternative property and online taxes as a possible replacement for rates. It will also address policy decisions introduced in the Spending Review 2020 and Budget 2021.

Should online sales tax be introduced?

As the report addresses competition from online sales, the topic of increasing the multiplier for warehousing was touched upon to redress the tax gap, subject to exemptions for small businesses. The general feel of responses in favour and against of introducing an Online Sales Tax (OST) are as follows:

  • Fairly distributing the tax burden currently shouldered by offline retailers and ‘levelling the playing field’
  • Using proceeds from Online Sales Tax to enforce business rate reductions
  • Online Sales Tax could play its part in rejuvenating the British high street and re-establishing tourism; however, it was argued that if the sole aim was to rescue the high street by burdening online retailers, this would be at an outweighed risk 
  • Tackling the disparity through existing tax framework, such as Corporation Tax or Digital Services Tax

As the tax position of online retailers is a current focal point, HM Treasury may likely use the pandemic as a launching ground for a new taxation measure that continues to be explored. As major retailers, such as Tesco and Asda, shared their support for the proposition of Online Sales Tax to redress the balance, the countdown begins for the release of the report. 

Clawing back on public spend through business rates 

In response to trading uncertainty stemming from the coronavirus pandemic, a business rates holiday for retail, hospitality and leisure properties was announced for the full financial year in March 2020, now extended to June 2021 (subject to change, correct at time of publication). This unprecedented move was taken to provide much-needed relief to businesses forced to close due to Covid-19 lockdown restrictions. 

Business rates represent a consistent flow of income for both local and national authorities and it is difficult to evade due to the physical nature of the tax. As the government turns its eye to post-Covid-19 economic recovery, they confirmed that that the 2021 revaluation would be postponed, reducing further uncertainty for businesses and will take effect in 2023. 


Keith Tully is a partner at Real Business Rescue, business recovery and turnaround expert with over 30 years’ experience in the field of insolvency. 

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