Tax on online deliveries?

[G-BOAF]

Apparently lined up for the budget this year

https://www.cityam.com/budget-2021-sunak-eyes-tax-on-online-deliveries-and-freelance-workers/

 

Hopefully it won't apply to model shops and other small retailers, or telephone orders at the least (one way of avioding such a charge i.e. not purchase online, but rather over the phone!)

Would be a shame for our hobby to be clobbered, especially small shops who have moved online to survive. And also following the discount limits imposed by Hornby and Bachmann to even out the playing field between online and local shops, it means the consumer without local access will be clobbered twice, especially hard in London where we have almost zero local shopws (Janes Trains in tooting being the last since Ian Allan closed)

 

I guess we wait and see what the rules will be....

[Hibelroad]

Many businesses have started online orders as a means to survive, I hope the idea is not to penalise them. I suspect that the big online only businesses are the target and those who also have shops will be spared. How this works out in practice remains to be seen. 

[John M Upton]

I would be willing to bet the big online retailers already have an armada of lawyers on speed dial who will come up with creative ways of avoiding paying any form of online sales tax, meanwhile small one man band type business will get hit and I would not be surprised to see a surcharge charged by the likes of Ebay at point of payment too.

 

Grim....

[phil-b259]

28 minutes ago, John M Upton said:

I would be willing to bet the big online retailers already have an armada of lawyers on speed dial who will come up with creative ways of avoiding paying any form of online sales tax, meanwhile small one man band type business will get hit and I would not be surprised to see a surcharge charged by the likes of Ebay at point of payment too.

 

Grim....

 

Its a move long overdue - the likes of Amazon is a key reason why high street retailers are struggling as the tax charged on operating a distribution warehouse on an industrial estate is many, many times lower than that of a chain of shops!

 

I do share your concerns over its implementation though - a sensible move would be to tie it in with other taxes so that it becomes broadly 'tax neutral' for smaller businesses but larger ones pay more overall.

 

How about raising the VAT threshold as one way of doing it?

[Michael Hodgson]

It is widely thought that the business rates system gives an unfair advantage to online traders and it's political suicide to muck about much with domestic rates/council tax - remember Thatcher's Poll tax, particularly the hostility in Scotland.  However local authorities need funding if we still want our bins emptied.  So it's pretty much inevitable that sooner or later the business rates system will be revised and online businesses will have to pay their fair share.  As that sector is growing the argument for taxing it only gets stronger as time passes, as the High Street is generating less and less.

 

It would not cost the government much to put the responsibility for tax collection onto online firms like amazon and ebay, and my concern is that they might levy a transaction tax not only on new products but also on the second hand market.

[Jonboy]

It’s an area I am watching with interest, working for a specialist wholesaler who operate b2b nationwide to small retailers via carrier...will we get caught up in such legislation if poorly written, passing on charges to small businesses.

Will out competition who sell b2c and b2b in the same way as Hornby get caught up, having to pass charges to small retailers as well to make their retail (and higher margin!) offering more appealing....

 

 

In reality business rates have surely got to be replaced by a percentage sales tax to become much fairer all round.

[Matt C]

As we are seeing the death of the high street I think its maybe time to do away with business rates on commercial property and add a % to Vat at point of sale. Pie in the Sky figure 5%. 3% to local Authority in which the sale is made 2% to a central fund to help cover areas of low business/ Rural areas.

 

  You sell 100 cups of Coffee, you pay tax on 100 cups of coffee, none of this ' Creative accounting' whereby you sell a ' Franchise' the materials at huge cost and then run the shop at a loss, We are now indipendant, we KNOW the companys who pull this kind of trick, make it ilegal under OUR rules.

 

Large hubs like Amazon, cap the amount at a REASONABLE amount that the local Authority can take and any amount over that goes into the general fund. This method would also catch those ' Working/ selling from home'  Via China, Point of sale tax on anything over a low threshold. This method would also mean those just starting out would enjoy a low tax cost, increasing as sales increase

 

Just my Tuppence worth

 

 

[Jonboy]

If a business rates replacement I suspect it needs to be a percentage or two on all sales, treated separately to VAT. This is because there are a lot of zero rated items out there, but the business rates overhead is currently calculated into selling prices.

[njee20]

It does seem like something they could apply to online only retailers. Cue Amazon and Asos opening small stores in a corner of Wales to get out of it!

[Nick C]

48 minutes ago, njee20 said:

It does seem like something they could apply to online only retailers. Cue Amazon and Asos opening small stores in a corner of Wales to get out of it!

Easy solution to that would be to make it based on the relative proportion of sales online vs on-premise. Over x% online, you pay the tax.

[njee20]

Yes, it was tongue in cheek, although I suspect it’d still affect a lot of model retailers, particularly the big ones. Could be interesting. 

[GoingUnderground]

There are two issues here.

1. Online businesses

2. International transfer pricing.

 

The first is the fact that retail premises are expensive to staff, main, and stock, much more so than online only businesses. Hence online businesses can undercut traditional retail simply because their total costs are lower. Is this fair? Well it all depends on your definition of "fair".  The country as a whole loses out as fewer jobs are needed in an online only business to move the same volume of goods and some folks will end up unemployed or on worse terms if they do find new jobs, but individual buyers gain because their money goes further. Jacking up business rates on warehouses won't work unless there is some sort of reverse loading calculation that can be applied so that the smaller your retail showroom space compared to your warehouse space, the larger the additional cost you have to pay. We have never lost control over property taxes so taking back control is irrelevant in this case. But the end result is that prices will go up on online sales, but I can't see them coming down on over the counter purchases.

 

The second is the way that businesses are better able to structure themselves to move taxable profits legally out of a higher tax area to a lower tax one, which allows them to undercut businesses unable to structure themselves in this way, not to mention enriching the directors and some shareholders. The country loses out again because of the loss of tax revenue on company and business profits. This isn't unique to online businesses only, and isn't a new issue, I know through personal experience of a well-known company based in the UK that in the 1980s did some of its business through the Isle of Man because it saved on corporate taxes and regulation. The increasing dominance of large multinational corporations is making it more and more significant, like a giant game of "Monopoly" but played for real. Again "Taking Back Control" is completely and utterly irrelevant in this context as it is one area where countries need to act together not individually, or the multinationals will reorganise themselves to get round the problem country. 

 

The two need to be looked at and dealt with separately as they are two separate issues.

 

I don't know the answers, and if there were any easy or simple ones, then you can bet that the politicians would have already taken them. But to a politician a "hard" decision is one that makes them less popular either with the electorate or with their financial backers, or hits them in their pockets personally.

[DCB]

It is all very well blaming business rates, the real problem is the business rental costs on which rates are based. Reduce business rates and the landlords will push up rents.  Now if the Landlords had to pay rates on empty properties instead of letting "Charities" use their empty shops the downward pressure on rents would hopefully make them affordable and business rates should logically fall in line with them.   Local Authorities bleat about being short of money yet we always used to star with the Council Tax increase we fancied and make the staff come up with a budget to match.   At times you could have halved it.  This last lock down Schools were asking for Lap Tops for kids, and to meet the spec were paying £500 plus per unit.  I paid £195 for a very good 17" screen Azus but obviously its not good enough for a 8 year old.

Our local tribe doubled the size of their "Cabinet"  (AKA A wooden display unit stuffed with useless ornaments) so more of  the controlling groups Councillors could trouser our hard earned. Previously when out of power some of their Councillors trousered £2K for attending 3 meeting p.a.  They also doubled their Chief exec from 50% of a post to one post.   No wonder they "need" money as after 10 years of Austerity they still have no concept of controls on spending.

[sidmouth]

On 28/02/2021 at 16:09, phil-b259 said:

 

Its a move long overdue - the likes of Amazon is a key reason why high street retailers are struggling as the tax charged on operating a distribution warehouse on an industrial estate is many, many times lower than that of a chain of shops!

 

I do share your concerns over its implementation though - a sensible move would be to tie it in with other taxes so that it becomes broadly 'tax neutral' for smaller businesses but larger ones pay more overall.

 

How about raising the VAT threshold as one way of doing it?

it is but it isn't . our world is so much more virtual and I've never had any real desire to go round shops anyway .If I can order from my favourite model shop online or over the phone , even better. In fact given my dislike of shopping generally the more I can get online , win win all round and I get the time back I would have otherwise have spent going to town . Taxing online retailers isn't the solution to saving town centres . Covid has accelerated an otherwise slower change but town centres need to reinvent themselves to attract people back in . identikit shops that could be anywhere is not an incentive and sky high rents kill the smaller shops 

 

[hayfield]

 

Taxation must keep up with the economy, in the past rates have been an easy and efficient way of collecting taxation, but like all things its so much easier to milk easy targets. Many warehouses are just that, a building that forwards goods, but with the growth of online shopping using warehouses to become online retail premises which have under cut the high street causing the decline of retail and the loss of billions in taxation.

 

Had these companies been paying a commensurate amount of tax then there would be no real cause for concern, but many of these businesses then hive off their profits to a lower rate third country. We need to recoup the tax we would have collected and get these multinationals to pay their fair share of tax on profits derived from trading in this country

 

The courier companies are slightly different, they are using subcontracting contracts to avoid having to provide a costly employed workforce. If these contractors were truly independent then there is no issue. However it is being proved that these contracts take away the contractors independence thus bringing them into an employer/employee relationship, but without the employee protections the law requires. Simply the employees loose out on benefits they are dur and the taxpayer loses out on tax and national insurance. At its worst leading to dangerous working practices taking place. Leading to employees and customers suffering.

 

Taxation and employment laws need updating 

[sidmouth]

On 15/03/2021 at 09:51, hayfield said:

 

Taxation must keep up with the economy, in the past rates have been an easy and efficient way of collecting taxation, but like all things its so much easier to milk easy targets. Many warehouses are just that, a building that forwards goods, but with the growth of online shopping using warehouses to become online retail premises which have under cut the high street causing the decline of retail and the loss of billions in taxation.

 

Had these companies been paying a commensurate amount of tax then there would be no real cause for concern, but many of these businesses then hive off their profits to a lower rate third country. We need to recoup the tax we would have collected and get these multinationals to pay their fair share of tax on profits derived from trading in this country

 

The courier companies are slightly different, they are using subcontracting contracts to avoid having to provide a costly employed workforce. If these contractors were truly independent then there is no issue. However it is being proved that these contracts take away the contractors independence thus bringing them into an employer/employee relationship, but without the employee protections the law requires. Simply the employees loose out on benefits they are dur and the taxpayer loses out on tax and national insurance. At its worst leading to dangerous working practices taking place. Leading to employees and customers suffering.

 

Taxation and employment laws need updating 

 

sorry ,I don't follow, how billions are lost in taxation . Sales are sales and there is no evidence of a major decline in sales . If anything with online profits can be higher and potentially a higher tax as a result . Why should I as a customer pay a tax to sustain a model that no longer works , if anything as prices go up what I spend is likely to go down  

[jcm@gwr]

16 minutes ago, sidmouth said:

 

sorry ,I don't follow, how billions are lost in taxation . Sales are sales and there is no evidence of a major decline in sales . If anything with online profits can be higher and potentially a higher tax as a result . Why should I as a customer pay a tax to sustain a model that no longer works , if anything as prices go up what I spend is likely to go down  

 

The government aren't going to get much tax from the sales of lots of £30 items,

what they are missing is the the corporation tax, on the profit the company makes.

(in simple terms)

[hayfield]

38 minutes ago, sidmouth said:

 

sorry ,I don't follow, how billions are lost in taxation . Sales are sales and there is no evidence of a major decline in sales . If anything with online profits can be higher and potentially a higher tax as a result . Why should I as a customer pay a tax to sustain a model that no longer works , if anything as prices go up what I spend is likely to go down  

 

We all should pay the appropriate amount of tax due, sadly too many do as much as they can to avoid it. There has been a slight decline in sales, but sales have transferred from the retail sector to online warehouse operations, who benefit from savings in taxation as well as other areas, 

 

Rightly or wrongly local services depend on business rates to provide a large part of their revenue, the loss of high street businesses which are closing down, thus reducing the revenue streams of local authorities. Also a second income stream was from car parking fees, which has also been lost with the demise of the high street. These losses in revenue need replacing one way or another

 

Simply these large warehouse type operations are basically retail outlets, but under current rules have a competitive edge in savings on overheads, nothing wrong with this but if we are to level up the playing field, we need to recapture the lost business rate revenue. These operations will have to pay their fair share of tax as other retailers have to. Secondly the larger ones avoid paying the appropriate amount of UK tax on their profits made in this country, simply by syphoning off its profits to lower taxation countries.

 

Now we have to replace this lost revenue one way or another. If you know a better way please contribute, as its a cost we will have to pay one way or another.

[Mark Saunders]

My thoughts on this is that the entire tax system is flawed and the part that is the cause of this is the Rateable value that means real shops pay more! Many years ago there was a local dog grooming salon that paid far less in a back alley than if they had moved onto the street front!

 

 

[GoingUnderground]

13 minutes ago, Mark Saunders said:

My thoughts on this is that the entire tax system is flawed and the part that is the cause of this is the Rateable value that means real shops pay more! Many years ago there was a local dog grooming salon that paid far less in a back alley than if they had moved onto the street front!

 

 

You're forgetting what used to be the holy grail of physical retailing - Location, Location, Location.

 

Dog grooming may not have needed a glamorous shopfront, unlike many retailers, but if it was out of sight it may well have had a bigger struggle to become well known, as being in an alley it will have been invisible to many dog owners. 

[Mark Saunders]

11 minutes ago, GoingUnderground said:

You're forgetting what used to be the holy grail of physical retailing - Location, Location, Location.

 

Dog grooming may not have needed a glamorous shopfront, unlike many retailers, but if it was out of sight it may well have had a bigger struggle to become well known, as being in an alley it will have been invisible to many dog owners. 

You missed the point:- it’s the actual amount of cash you pay out for a particular location! 
 

Big warehouses are  not on the high street and pay less than a comparable sized real shop!

 

 It is similar to Sunday trading hours linked to shop area!

[GoingUnderground]

1 hour ago, sidmouth said:

 

sorry ,I don't follow, how billions are lost in taxation . Sales are sales and there is no evidence of a major decline in sales . If anything with online profits can be higher and potentially a higher tax as a result . Why should I as a customer pay a tax to sustain a model that no longer works , if anything as prices go up what I spend is likely to go down  

As online retailers tend to charge lower prices, the VAT collected by HMRC from the end buyer, you, will be lower. That lower VAT/tax take is only made up if you choose to spend the saving in the UK on another product that attracts VAT.

 

In addition to lower business rates when comparted to traditional retail premises, online retailers will employ fewer people as they don't need shopfloor staff to serve customers and may well have automated picking systems, depending on the size of the items concerned and how they're held in the warehouse.

So fewer people means less National Insurance contributions collected from the employers and employees and less PAYE collected. And if those people who would have worked in retail end up in jobs less highly paid than their jobs were in retail (possible, but not certain) they'll have lower spending power and pay less income tax and NI, and less of their net pay will be spent on items on which VAT is payable.

 

The idea that online profits will be higher will only be true if the supplier has a dominant market position and can charge what they want, or are reaping such economies of scale that they are more profitable if their prices are set at around the 'going rate' being charged by smaller- less efficient online retailers, or what they are supplying cannot be bought anywhere else. Otherwise competition from other online retailers will, in theory, limit the freedom of any one online retailer to jack up prices.

[GoingUnderground]

9 minutes ago, Mark Saunders said:

You missed the point:- it’s the actual amount of cash you pay out for a particular location! 
 

Big warehouses are  not on the high street and pay less than a comparable sized real shop!

 

 It is similar to Sunday trading hours linked to shop area!

No I didn't. As I read it, your point was that rates are lower for premises away from prominent positions on the high street. You didn't mention 'big warehouses' in your previous post.

 

Your point about warehouse only retailers trading from a site on an industrial park away from the High Street paying less property taxes than retailers with a "real shop" isn't new. It goes back at least 40 years to when Comet set up shop selling consumer durables, TVs, washing machines, cookers, fridges, freezers, Hi-Fi systems, and the like. The first one that I visited was on an industrial estate in Hayes, in the late lamented county of Middlesex, and it didn't have any display space as such, just the odd item in the area open the the public, something to look at to stop the punters getting bored whilst waiting. I don't think that stand alone retail parks existed, at least in the UK, in those days. It was probably companies like Comet and Tempo and the furniture retailer MFI trading out of premises on industrial estates with lower costs and lower prices and bigger choice than the High Street, and the rise of self service supermarkets, with the greater convenience of being able to park outside and the increased car ownership, that spurred the creation and growth of retail parks.

 

We have been on the march away from the traditional High Street for the last 60 years. I only have to go back to the suburb where I grew up and think back to what it used to be like when I was a kid to see the change. Internet shopping and Covid has merely accelerated the trend. But politicians of all parties only react when a crisis point is reached and they have to do something to minimise public disquiet (nothing like the fear of losing an election to make them do something!). We are now at that crisis, or tipping point, when physical over the counter retailing is in serious decline due to the rise of online, and businesses and jobs are being lost because of it. 

[hayfield]

Quite a lot of these online companies do not make profits, with this statement you would think they are trading insolvently? If the likes of you and me traded like this we would be bankrupt, but many companies thrive when failing to produce a profit

 

However there is a lot of difference between gross profits and net profits/losses. Somewhere along the line income/profit is seemingly syphoned off to create a trading loss ?  Modern economics. 

[GoingUnderground]

1 minute ago, hayfield said:

Quite a lot of these online companies do not make profits, with this statement you would think they are trading insolvently? If the likes of you and me traded like this we would be bankrupt, but many companies thrive when failing to produce a profit

 

However there is a lot of difference between gross profits and net profits/losses. Somewhere along the line income/profit is seemingly syphoned off to create a trading loss ?  Modern economics. 

Profit is defined as the excess of income over expenditure to most people. But to accountants profit is the the increase in net assets, and net assets means the worth to the business of all its assets, cash, stock buildings, plant, money you are owed, expenditure of business critical software etc, less what's owed to suppliers, banks, etc. in total, and that will include loans not repayable possibly for many years ahead in the same way that an interest only mortgage is repayable in full after so many years.

 

Simply, gross profit is your sales less the cost of making/creating what you've sold. Net profit is the gross profit less the other costs of running the business.

 

Being solvent means being able to meet your debts as the fall due, and that will only incldue long term loans as they become repayable. Also being solvent is not the same as being profitable.

 

There are plenty of companies that have gone to the wall which were "profitable" at the time but couldn't pay off their debts, usually resulting from money borrowed to buy land, buildings, equipment, etc..

 

Moving profits around between companies by charging more than the actual cost isn't new. It's probably as old as the invention of money. But with the relaxation in exchange controls making for easy access to offshore companies in lower tax areas and the rise of multinational companies who owe less allegiance to their country of origin and more to the increasing wealth of their directors, the incentive to move (syphon if you prefer) profits to lower tax regimes has never been greater, or easier.