High-street retailers paying 755 per cent more in rates than online rivals

Last Friday (20 May), the UK government closed a consultation into the possible introduction of a tax on ecommerce as a potential measure to fund a reduction in business rates, the property tax that shops, pubs and restaurants are obliged to pay.

Bosses at Sainsbury’s urged the government to launch the new online sales tax, accusing the current business rates system of “destroying high streets up and down the country”. However, retail rival Marks & Spencer said an additional tax on retailers would mean they will “cut their cloth accordingly.”

New analysis by real-estate advisory firm Altus Group shows that for every £100 earned by large retailers in Great Britain, excluding non-store sales and fuel, £2.91 is owed to local councils in business rates.

However, for large online-only retailers, for every £100 in sales, total business rates amount to just 34p, according to the data.

Estimates suggest a revenue-based online sales tax of 1 per cent on the online sale of goods to UK customers above an allowance of £2m for smaller firms could raise around £1bn a year.

Robert Hayton, UK president at Altus Group, said: “Ringfencing that revenue and targeting it to actually cut rates for retail, leisure and hospitality premises could lead to a reduction in rates of about 9 per cent.

“No solution will be easy nor perfect but, if left unchecked, could lead to the substantial extinction of the high street and the erosion of local communities”.

Tax authorities around the world have been grappling for years to try to reach an international agreement, with the likes of Amazon reporting their British retail sales in Luxembourg. The landlocked Grand Duchy is known for its obligingly low tax demands, with many other international companies also registering a presence there.

E&T has previously looked at how the web has revolutionised retail, with online stores adapting some traditional sales techniques while offline shops leverage the power of the internet to entice and engage shoppers. Whilst the prevailing notion is that online retail is crushing 'bricks-and-mortar' real-world shopping, a pre-pandemic survey by TimeTrade in fact revealed that three out of four consumers said they preferred shopping in a physical store.

Meanwhile, a 2020 survey found that 38 per cent of retailers believe 'digital natives' (Millennials and Gen Z-ers, who have never known life without the internet) prefer in-store shopping because it provides instant gratification and adds a social element. At the same time, they also enjoy the personalised discounts and convenience of ‘open all hours’ online shopping.