Chancellor John Healey is weighing a £1 billion VAT crackdown on online marketplaces, potentially forcing platforms to collect taxes for third-party sellers. The move could affect major sites like Amazon and eBay, with revenue earmarked to fund business rate reductions for high street shops.
Marketplace VAT liability
The plan would extend existing rules that already require marketplaces to handle VAT for overseas sellers. Under current guidance, platforms are responsible for VAT on goods already in the United Kingdom and on imports worth £135 or less. Healey is now considering extending this responsibility to sales by UK-based businesses using these platforms.
Treasury officials consulted on this issue in June, specifically looking at how to apply marketplace liability to domestic sellers. The consultation noted that VAT non-compliance by both overseas and UK businesses creates unfair competition. It argued that compliant firms trading both online and in physical stores suffer when smaller competitors avoid tax obligations.
Officials also asked for evidence on the practical impact of such a change. They want to know how the new collection requirement would work operationally and how it would affect smaller businesses that are not required to register for VAT. The government has not confirmed the final details, including the scope of the new rule or its implementation date.
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Shifting the tax burden to platforms would likely simplify accounting for many small online sellers. Instead of dealing with complex cross-border VAT rules directly, they would operate under a system already in place at the storefront level.
Pressure from high street retailers
Healey met with retail and hospitality leaders at Downing Street on Tuesday. The meeting included representatives from Tesco, Sainsbury’s, Marks & Spencer and the Co-op. Healey did not disclose specific Budget proposals during the session.
Helen Dickinson, chief executive of the British Retail Consortium, told the Chancellor that retailers’ taxes have increased by 20 per cent over two years. This rise includes an additional £6.5 billion in employment costs. Dickinson urged the government to ease these costs and make the tax system fairer in the upcoming Budget.
The Budget is scheduled for October 28. While the marketplace VAT proposal remains under consideration, its inclusion in the final package is not guaranteed. Officials have not outlined the full extent of any new collection requirement or its impact on smaller businesses.
