The Chancellor, John Healey, is preparing a tax overhaul under which online marketplaces would gather VAT directly from traders who sell through them, according to The Times. The money raised, around £1 billion, would go towards lowering business rates for shops on the high street.

Key points

  • Who pays — platforms such as Amazon, eBay and Temu would collect VAT from business sellers with turnover above £90,000 a year.
  • Where the money goes — about £1 billion would fund cuts to business rates for high street shops.
  • Why it is happening — concerns that overseas traders undercut British competitors by avoiding VAT.

Officials are worried that Chinese retailers have been using the platforms to undercut British competitors by escaping the 20% VAT charged on their sales. The newspaper says tens of thousands of shell companies have been registered in the UK by Chinese citizens, giving them VAT numbers so they can trade as UK sellers — before being wound up when the tax falls due. There is no suggestion of wrongdoing by the marketplaces.

“Closing this loophole will raise significant revenue for the exchequer and simplify compliance for both HMRC and legitimate sellers.”

That was the response of an Amazon spokesman, who welcomed the policy. The Federation of Small Businesses, however, argues the £90,000 threshold is set too high and leaves the system exposed to abuse. Dan Neidle of Tax Policy Associates called the change “a step in the right direction”.

Mr Healey is said to have turned down a proposed levy on larger retailers to help smaller high street shops. In Scotland, where the Holyrood government controls business rates, big retailers already pay £54 million a year more than their counterparts in England.

Editor's comment

What it means in practice

Shoppers are unlikely to notice much at the till, but the change shifts the paperwork onto the platforms. For small traders, what matters is how the £90,000 turnover line is policed and whether genuine part-time sellers get caught up in the new system. The promised rates cut for high street premises is the part that could show up in town centres — though only once the Treasury sets out the details.

  • Sellers — keep clear records of turnover so you know whether you fall above or below the £90,000 mark.
  • High street shops — watch for the rates announcement; the relief depends on the £1 billion actually being raised.
  • Shoppers — prices from overseas sellers may edge up if VAT is now collected at source.