Online sales tax plan could cut high street business rates

An online sales tax aimed at large retailers such as Amazon could be used to cut business rates on UK high streets, but only if ministers adopt it before the Budget on 28 October. The Institute for Public Policy Research (IPPR), a think tank, says a levy on remote sales could raise an estimated £1.5bn. The government has not endorsed the idea.

A Treasury spokesman said the Chancellor is “fully focused on his priorities” and that tax decisions are for him to set out at fiscal events, “rather than routinely commenting on rumour, speculation or proposals”. Until then, nothing changes for shoppers or shopkeepers.

The e-commerce tax reform plan in plain English

The IPPR proposes a 2% charge on remote sales of goods by large retailers, with a lower 1% rate on click-and-collect purchases, which it says bring shoppers into physical stores. The tax would cover goods bought without visiting a shop, whether online, by telephone or through another remote channel. Businesses would work out what they owe at the end of their accounting year and pay it with their existing tax returns, so shoppers would not see a charge at checkout.

The money would pay for lower business rates for retail, hospitality and leisure firms. The IPPR puts the cost of reducing the multiplier for those sectors at around £900m in England. It says online sales now make up nearly three in 10 retail sales, and that the tax system has not kept up.

Aditi Sriram of the IPPR wrote that “the problem is not that online retail has grown, but that the tax system has failed to adapt alongside it”. The “Amazon tax” label comes from press coverage, including Birmingham Live. The IPPR itself describes a levy on large retailers’ remote sales.

Who would pay more and who would pay less

The largest bills would fall on big retailers with substantial remote sales. The IPPR says large online marketplaces would have to collect the tax on transactions made on their platforms, including sales by smaller traders. Any business would pay nothing on its first £500,000 of remote sales each year, which the IPPR says avoids a sudden cliff edge for smaller sellers.

On the other side, the IPPR estimates the changes could leave small high street businesses about £1,400 a year better off and larger firms about £2,500, according to Birmingham Live. The Independent reports the think tank says local authorities would be fully compensated for lost business rates income. The IPPR notes that business rates raised £27.6bn in 2026, around 3% of all UK tax revenue.

The think tank points to Next’s accounts to show the gap between channels.

The IPPR cautions that business rates do not explain the whole difference, since product mix and other costs also matter. Shoppers could feel the tax if retailers pass it on in prices. The IPPR suggests considering an exemption for goods that are zero-rated for VAT, including most groceries, to protect household budgets.

A worked example: what the 2% would mean in pounds

These figures are our illustration of the IPPR’s published rules, not calculations from the think tank. Take a retailer that sells £2m of goods a year for home delivery. The first £500,000 is exempt, leaving £1.5m taxable, and 2% of that is £30,000. A seller with £600,000 of remote sales would owe 2% of £100,000, or £2,000, while one with £400,000 would owe nothing.

For a shopper, the effect depends entirely on pricing. If a retailer passed the whole 2% on, a £50 delivered order would cost £1 more. The IPPR says the impact on living costs depends on how much of the tax businesses pass on, and that is why it wants essentials treated carefully.

For a high street shop, the IPPR’s £1,400 average saving works out at about £27 a week. The actual figure would depend on the final rates cut. The IPPR says it would be a first step while wider business rates reform, which it describes as complex, is developed.

What happens next

For shops, pubs and restaurants, nothing changes before the Budget. Current business rates bills, including the multiplier and rateable value, remain the reference point if the Chancellor announces a cut on 28 October.

The timing matters. The IPPR made its call on Thursday, ahead of the Budget on 28 October. The think tank also notes that the prime minister, Andy Burnham, has proposed extra relief for pubs and live music venues, which it calls a positive first step that leaves out other businesses facing similar challenges.

Retailers are pressing for action. Tesco’s chief executive Ken Murphy told reporters that retailers pay “on average, four times their fair share of rates”, according to City AM. He asked for all retail businesses to be exempted from the £500,000 rateable value threshold. The same report says the government has reportedly considered raising the top rates multiplier, which retailers say would push up prices. The IPPR also argues against taxing warehouses. Any effect on shop prices would depend on how retailers respond.

Your questions answered

Do I need to pay tax on Amazon sales?

Under the IPPR plan, the tax would fall on businesses, not on shoppers. Marketplaces would collect it on transactions made on their platforms, including sales by smaller traders, and no tax would be due on a business’s first £500,000 of remote sales. None of this is law, and the sources do not set out the tax rules that apply to sellers today.

Does Amazon charge you sales tax?

The sources do not cover what Amazon charges at checkout now. The IPPR proposal would be levied on businesses at the end of their accounting year rather than on individual sales, so no separate charge would appear on your receipt. Any effect on you would come through prices, if retailers chose to pass the cost on.

Will this definitely happen?

No. The proposal comes from a think tank, and the Treasury has said tax decisions are for the Chancellor to announce at fiscal events. The Chancellor is due to deliver the Budget on 28 October.