Healey reportedly plans online marketplace VAT crackdown worth up to £1bn

An online marketplace tax in the UK is reportedly being drawn up for the Budget on 28 October. Chancellor John Healey is said to be preparing to make platforms such as Amazon, eBay and Temu responsible for collecting VAT owed by the retailers who sell through them. The Times reported that the move could raise up to £1bn, and the Guardian, City AM, the Independent and Retail Gazette all carried the story.

The Treasury has not confirmed the plan. A 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.”

What the reported high street support package involves

According to the Times, online marketplaces would collect VAT at source for every seller on their platform with annual turnover above £90,000. The aim, the report says, is to stop foreign retailers that have taken advantage of weak rules and enforcement from avoiding VAT on their sales. City AM reported that the policy is meant to address concerns that overseas firms set up UK shell companies to avoid the tax.

The revenue is expected to pay for cuts to business rates for high street shops, a pledge long associated with Andy Burnham. Before he was elected in Makerfield, Burnham said he would exempt 140,000 small high street retailers from the tax. City AM reported that Healey is said to have ruled out a tax on out-of-town warehouses, which retail bosses had opposed. John Lewis executive chairman Jason Tarry said last week that such a tax would “reveal a fundamental misunderstanding of how modern high streets work”.

Who is affected, and what it could mean for sellers

The most direct effect would fall on sellers above the £90,000 line and on the platforms that host them. Retail Gazette noted that platforms are already liable for VAT on goods sold by overseas retailers when the goods are already in the UK, and on imported consignments worth £135 or less. In June, HM Treasury and HM Revenue & Customs consulted on extending that liability to sales by UK businesses using marketplaces.

As an illustration, not a figure from the reports: a seller with £120,000 of sales before VAT, charged at the standard 20% rate, would owe £24,000 in VAT. Under the reported plan the marketplace, not the seller, would collect and pay over that sum. The sources do not say whether platforms would pass any cost on to sellers or shoppers, so the effect on prices is not yet clear.

Amazon told the Times it supported the crackdown. An Amazon spokesman said: “Closing this loophole will raise significant revenue for the exchequer and simplify compliance for both HMRC and legitimate sellers.”

How the estimates compare

The figures reported so far differ, and the final design could change them.

Dan Neidle, founder of Tax Policy Associates, told the Times the plan was “a step in the right direction” but that the Treasury should “make online marketplaces responsible for collecting every penny of VAT on the sales made on their platform”. He warned that otherwise “these Chinese sham companies will find just another way around the rules”.

What happens next

Healey will set out his tax decisions at the Budget on 28 October. Retail Gazette said the extent of any new collection requirement, its timing and its effect on smaller businesses have yet to be confirmed. The earlier consultation also sought evidence on the administrative impact of making marketplaces liable for more sellers’ VAT.

Pressure from retailers is continuing. On Tuesday Healey met retail and hospitality leaders at Downing Street, including representatives of Tesco, Sainsbury’s, Marks & Spencer and the Co-op. British Retail Consortium chief executive Helen Dickinson told him retailers’ taxes had risen by 20% in two years, including an extra £6.5bn in employment costs. The Institute for Fiscal Studies has also warned that the Budget risks being a “work of fiction” unless it covers £35bn of spending pressures.