Online retail tax would stunt business growth, etailers warn

The possibility of an online tax is being examined by the British Retail Consortium to put etailers on a level playing field with bricks and mortar retailers.

High street retailers pay business rates across their property estate, equating to £7bn. But online retailers proportionatley pay signifcantly less due to their smaller property portfolios, which often just include warehousing and head office buildings.

But in a letter sent to chief secretary to the Treasury Danny Alexander the founders of Sofa.com have said that a tax on online retailers would be “bad for consumers, business, and the UK”.

Sofa.com’s Pat Reeves and Rohan Blacker said: “A tax, if imposed, could be a barrier to entrepreneurship, negatively impact small business, reduce consumer choice and hit at the heart of the UK’s world-leading online retail industry.”

Founded in 2005, Sofa.com sells sofas, chairs and beds. In the year to February 2013, sales rose 30% to £16.8m.

In the joint letter Reeves and Blacker said: “Sofa.com, like all profitable online retailers, already pays significant corporation tax and VAT.

“We employ lots of people who pay national insurance, and all our shareholders also pay tax.

“It is the consumers who decide which retailers are successful – this is market forces at work. Taxing online retailers won’t change this, but most likely lead to a reduced consumer choice online.

“Retailers should accept cost variances: e.g. traditionally online retailers have larger technology investment and delivery costs, whereas traditional retailers have higher rents and rates.

“Online businesses often fail. Online isn’t some magical way of beating the high street, only the best businesses survive and as such, it’s absurd to imply that online retail has an ‘inherent advantage’over traditional shops.”

The sofa.com founders said that an online tax would put up a barrier for entrepreneurs who are pushing the UK economy back to sustained growth.

Online retailing in the UK has grown more rapidly than anywhere else in the world, with companies such as fashion retailer Asos thriving. The sofa.com letter said that a tax on online businesses would be an “unusual way to support one of the UK’s success stories”.

“The Government is calling on technology companies and entrepreneurs to help the UK economy,” the letter said.

“The internet enables entrepreneurs to start businesses quickly and cheaply – it’s a great place for the ‘little guy’ with a good idea to bring a product to market.

“The vast majority of new jobs created in any year in the UK are from small firms. Therefore, an online sales tax will not be helpful.”