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Online retailers defend their corner against potential new sales tax

By Clotilde Gros
02 March 2021

By Clotilde Gros

Asos, Boohoo, The Hut Group (THG), Ocado Group and AO World have all announced that they have joined the UKDBA (The UK Digital Business Association, not to be confused with the United Kingdom DodgeBall Association), a new trade body launched earlier last week to “champion the sector” as it adapts to “ever-changing consumer needs”.  

In terms of communications, the announcement seems to have been made in haste, there is no website or details of what this new trade body will do aside from championing the sector. Will these members mentor and help develop new and upcoming businesses, or was it set up as a way to club together to fight against the potential soon to be implemented online tax? 

The timing of this is very opportune given that the Treasury has been weighing up tax changes to link to the shift in consumer spending online versus the high street. As a result, it is reviewing the future of business rates and is considering options for an online sales tax. Together as one voice, these companies are stronger as they try to fend off the attack from the more traditional competitors who are demanding a fairer balance of tax. 

Several big retailers, including Tesco, have previously backed the launch of an online sales tax to redress the balance. According to the Sunday Times, Rishi Sunak, the Chancellor, is supportive of such a move, but would probably wait until the autumn to launch a raid on internet firms such as Amazon, Asos and Ocado. There is no doubt that there needs to be a rebalance of the costs of business between online and physical retail, but also to plug a big hole in lost business rates and revenue as more stores close. A 2% levy on all goods bought online would raise £2 billion a year for the Government – much needed revenue in light of the cost of the support it has given the country over the last 18 months.

The shift in demand online, driven by the pandemic, has certainly helped the economy through a rise in job creation. The UKDBA’s argument is that the six UK based retail members saw an increase of 40.8% in employee numbers between 2016-19, with around 10,000 further jobs expected to be added this year. This compares to tragic figures from traditional bricks and mortar stores, more recently highlighted by the news that 5,000 jobs were at risk at Asda.

The other side of the story is the performance of these business. ASOS’ latest full year results for the year to end of August show a Profit Before Tax increase of 329% to £142m, similarly, Boohoo’s interim for the six months to end of August saw a Profit Before Tax increase of 51% to £68.1m. Amazon’s UK sales rose by 51% last year to a reach £19.4bn. 

Companies selling over the internet have been among the big beneficiaries of the lockdown, along with delivery firms. Even in normal times they have a cost advantage over bricks and mortar shops because they do not need to pay rent or maintenance costs on retail properties. 

There have been numerous stories reported in the media that the online tax issue divides retail leaders, some saying a tax would simply push up prices for consumers. We will need to wait until the autumn to find out more – whichever way it goes, it will be one the UKDBA will be heavily involved with.