The government of the United Kingdom wants to make marketplaces responsible for collecting VAT on sales by larger domestic sellers. The proposed measure could raise up to 1 billion pounds a year for the Treasury, with the additional revenue intended to fund tax cuts for high street businesses.

Since 2021, online marketplaces have been responsible for collecting VAT on certain sales by overseas sellers. However, VAT evasion remains a problem, particularly among foreign traders using shell companies registered in the United Kingdom to present themselves as domestic businesses.

Under the proposed rules, marketplaces would also become responsible for collecting and remitting VAT on sales by business sellers based in the United Kingdom. According to The Times, the government is considering a threshold of 90,000 pounds in annual sales per platform. The measure aims to improve tax compliance and create a more level playing field for retailers.

The government plans to use the additional VAT revenue to lower business rates for high street retailers. Prime Minister Andy Burnham has previously pledged to give family-owned businesses “the chance to thrive”, describing them as the “heart and soul of this country”. However, the government’s limited financial room for manoeuvre makes additional tax revenue important to its plans to support high street retailers.

The proposed changes are partly aimed at Chinese sellers who allegedly evade the United Kingdom’s 20 percent VAT, allowing them to undercut British competitors. According to The Times , Chinese nationals have established tens of thousands of shell companies in the United Kingdom in recent years.

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