- UK Treasury to create a more level playing field between online and traditional retailers.
- Government seeks to protect high street businesses and sustain their viability.
The UK Treasury has announced plans to increase business rates on large distribution warehouses utilised by online retailers, including Amazon.com Inc.
The initiative, outlined in Chancellor of the Exchequer Rachel Reeves’ budget proposal, is designed to alleviate the tax burden on high street retailers, thereby fostering a more equitable competitive environment between online giants and brick-and-mortar businesses.
Starting in 2026-27, properties valued over £500,000 will be subjected to a higher tax rate, which the Treasury asserts will predominantly affect major distribution centers.
The move aims to capture a market segment that has historically benefited from lower taxation relative to their physical presence, thus creating an uneven playing field for traditional retailers.
Rebalancing
High street businesses have long criticised the current business rates system, arguing that it disproportionately impacts them while providing an advantage to online competitors with smaller physical footprints or locations outside city centres where land values are lower.
The Treasury’s document emphasises the need to rebalance the business rates burden, stating that the current system disproportionately affects property-intensive sectors.
By imposing higher taxes on large online retailers, the government seeks to protect high street businesses and sustain their viability. Additionally, the announcement included temporary relief measures, such as a 40 per cent reduction in business rates for retail, hospitality, and leisure sectors for the 2025-26 fiscal year, bridging the gap as previous Covid-era relief measures expire.
Despite these attempts to support high street retailers, reactions from the broader business community have been mixed. Critics argue that the overall budget increases costs for companies, making it difficult for them to invest or hire, especially in light of the Chancellor’s proposed £40 billion in tax increases and a rise in the minimum wage.
Targeting online retailers
For instance, the British Retail Consortium has estimated an additional £367 million in expenses for businesses as a direct result of the budget, while UKHospitality has projected that the cost of each full-time employee will rise by at least £2,500.
The strategy to target online retailers is not novel; previous governments had considered similar measures, including the notion of an online sales tax, which was ultimately dismissed.
However, with Amazon generating approximately $33.6 billion in revenue from the UK in 2023, representing a significant segment of its global earnings, the company finds itself at the centre of scrutiny.
Notably, Amazon has acknowledged its role as one of the top taxpayers in the UK, contributing nearly £932 million in direct taxes alongside substantial amounts collected from customers.