Online marketplaces such as Amazon, eBay and Temu will be responsible for collecting tax owed by retailers selling on their platforms, under a change aimed at supporting the high street.
Chancellor John Healey wants to help smaller shops by cracking down on mainly foreign sellers who exploit lax rules and enforcement to avoid paying VAT on sales.
Mr Healey is expected to announce that about £1 billion raised from the change in the tax rules will be used to cut business rates for high street shops.
A Treasury source told The Times that a priority for Mr Healey was to “protect local family businesses and the high streets we love”.
The move comes amid concerns about Chinese retailers using online marketplaces to systematically undercut their British competitors by evading the 20% VAT on all their sales.
In the past few years tens of thousands of UK shell companies have been set up by Chinese citizens allowing them to obtain VAT numbers, reports The Times.
These companies are then used to register as UK sellers on platforms such as Amazon and eBay, only to be shut down before payment of VAT is demanded. There is no suggestion of wrongdoing by the marketplaces.
The newspaper reports the case of a flat in a student accommodation block in north London which was the registered address of 54 companies that had 49 Chinese accountants as their sole directors.
Under the new rules online marketplaces will be responsible for collecting VAT at source for all business sellers who have an annual turnover of more than £90,000.
Dan Neidle, founder of Tax Policy Associates, described the tightening of the rules as “a step in the right direction” but the Federation of Small Businesses said this threshold is too high and could leave the tax regime open to abuse.
Amazon welcomed the policy. A spokesman said: “Closing this loophole will raise significant revenue for the exchequer and simplify compliance for both HMRC and legitimate sellers.”
Mr Healey is understood to have rejected a proposed “warehouse tax” on larger retailers to support smaller high street stores, though large retailers in Scotland, where the Holyrood government sets business rates, already pay £54 million a year more than their England-based counterparts.
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