A tax crackdown on online marketplaces such as Amazon and eBay that could raise up to £1bn more for the Treasury is reportedly being drawn up for John Healey’s first budget.
The chancellor is said to be preparing to announce that online marketplaces will be made responsible for collecting tax owed by all retailers selling on their platforms.
Marketplaces have been required to collect VAT for overseas businesses selling into the UK since 2021 but some foreign operators have posed as British retailers, using shell companies or other techniques to avoid this rule.
Under the proposed change, websites would be made responsible for collecting VAT at source for retailers on their platform who have an annual turnover of more than £90,000, no matter where they are based.
Healey is expected to announce this change will be made to fund cuts to business rates for high street shops, the Times reported.
The government ran a consultation on reform to the “deemed reseller” rules over the summer, saying “non-compliance persists among both overseas and UK-based businesses, distorting competition and disadvantaging compliant firms online and on the high street”.
It consulted with food delivery platforms as well as retail marketplaces, suggesting it was considering drawing them into the system.
Amazon said it welcomed the prospect of a change to deemed reseller rules. “Closing this loophole will raise significant revenue for the exchequer and simplify compliance for both HMRC and legitimate sellers,” the UK’s biggest online marketplace said.
The development comes as pressure continues to grow on Andy Burnham and Healey to relieve struggling small businesses on the high street before the budget on 28 October.
Before he was elected in Makerfield, Burnham said he would increase the threshold for business rates so that 140,000 small high street retailers would not pay the tax.
The government is facing calls from many factions to cut tax, with large retailers pushing for changes to national insurance to boost youth employment, for example.
However, this week the Institute for Fiscal Studies warned Healey that his budget risks being a “work of fiction” unless he sets out plans to cover £35bn in spending pressures.
The IFS said the damage from higher inflation meant the chancellor would need to either top up funds for his current government spending plans or impose deep real-terms cuts by the end of the decade.
In a boost for the Treasury, this week the International Monetary Fund upgraded its GDP growth forecast for the UK this year to 1.3%, up 0.3 percentage points from its previous update in July.
However, 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.
A spokesperson for the Treasury 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.”