John Healey is preparing to use his first budget to make online marketplaces such as Amazon and eBay collect the VAT owed by retailers selling on their platforms, in a crackdown that could raise up to £1bn for the Treasury.
The chancellor is expected to announce that the proceeds will fund cuts to business rates for high street shops when he delivers the budget on 28 October.
Under the plan described by The Times, marketplaces would collect VAT at source for all retailers on their platforms with annual turnover of more than £90,000. The newspaper said the measure was aimed at foreign retailers that had avoided VAT on their sales by taking advantage of a lack of robust rules and enforcement.
A Treasury spokesperson said: “As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events rather than routinely commenting on rumour, speculation or proposals.”
On 23 June HMRC and the Treasury published a consultation on extending marketplaces’ VAT liability to sales by UK-based businesses whose goods are in the UK at the point of sale. It closed on 18 August.
As the consultation noted, marketplaces have since 2021 been liable for charging and collecting VAT on sales to consumers of imported goods worth £135 or less, and of goods held in the UK when an overseas business sells them. It said those rules, combined with the removal of low value consignment relief, were estimated to have raised more than £8bn and to be raising £1.8bn a year.
Its lead proposal was a £90,000 minimum platform threshold, which would bring into scope only UK businesses whose sales on an individual platform exceed the VAT registration threshold. It also sought views on a lower threshold. HMRC estimated in the document that tens of thousands of UK-based businesses trading through marketplaces were not meeting their VAT obligations, at a possible cost to the Exchequer of hundreds of millions of pounds a year.
The consultation said sellers that currently account for VAT on their sales could face a cashflow impact, because the VAT they would normally hold before paying it to HMRC would instead be collected by the marketplaces. The government committed that any revenue raised would go towards improvements to the business rates system for pubs, restaurants, hotels and other high street businesses, which it said would be announced at the budget.
The report comes amid pressure on the prime minister, Andy Burnham, and Healey to provide relief for small businesses on the high street before the budget. Before he was elected in Makerfield, Burnham said he would raise the threshold for business rates so that 140,000 small high street retailers would not pay the tax.
On Monday the Institute for Fiscal Studies warned that the budget risked being a “work of fiction” unless Healey set out plans to cover £35bn in spending pressures. The think tank said higher inflation left the chancellor needing either to top up funding for current spending plans or to impose deep real-terms cuts by the end of the decade.
Yesterday the International Monetary Fund raised its forecast for UK GDP growth this year to 1.3 per cent, up 0.3 percentage points from its previous update in July. The IMF also cautioned that Healey should “stay the course” and continue repairing the UK’s public finances.
Silvana Tenreyro, the IMF’s economic counsellor, said the UK “stands out” among G7 countries in having a plan to narrow its deficit.
