UK retailers press government on business rate reform to compete with tech giants

Firms like Amazon pay about a tenth of the amount bricks and mortar stores are liable for in business rates, and now retail chiefs want action

The chief executives of leading stores in the UK have urged the government to reform business rates to help them compete with e-commerce companies like Amazon.

In a letter to Chancellor Rishi Sunak last week, the bosses of 17 retail chains, including David Potts of Morrisons, Ken Murphy of Tesco, and Roger Burnley of Asda, insisted there is a need to "rebalance the tax base" between online and bricks-and-mortar retail, to ensure everyone pays a similar proportion of tax.

The retailers argued that business rates (a tax on commercial property) have grown disproportionately compared to other taxes in past years. They point out that companies like Amazon pay a lower amount in business rates compared to bricks and mortar retailers.

The letter's signatories urged the government to slash the business rate multiplier, from the current 50 per cent of a property's rateable value to around 35 per cent. Online businesses generally pay less than their high street competitors because their warehouses or offices are normally located in out-of-town sites, where the rateable value of buildings is lower.

Last year, Amazon's UK sales were $26.5 billion (£19.3 billion), up 51 per cent since 2019, according to official figures. But, researchers estimate that Amazon's overall business rates bill for 2020-2021 is around £71.5 million - just 0.37 per cent of its retail sales.

Physical retailers complain that Amazon's business rates bill is much lower than the £8 billion a retail sector firm typically pays a year in business rates.

Retail advisor Altus Group estimates that bricks and mortar retailers would have paid £8.25 billion in business rates in 2020, had they not received a tax holiday due to the Covid-19 pandemic.

In a statement to the BBC, Amazon said that it has invested more than £23 billion in infrastructure and jobs in the UK since 2010, creating 10,000 new jobs last year alone.

'This continued investment helped contribute to a total tax contribution of £1.1 billion during 2019 - £293 million in direct taxes and £854 million in indirect taxes,' the company said.

Amazon declined to comment on the calculations made by Altus Group.

The Treasury is said to be reviewing business rates now, and Chancellor Sunak may target the online companies that performed well out of lockdown.

In April last year, the government announced the two per cent digital services tax (DST) on tech firms like Google, Facebook and Amazon, after slow progress on a global agreement over how to handle taxing big technology companies.

At the time, the Treasury said it would levy the tax against firms whose annual global revenues from digital services exceeded £500 million. Of that figure, more than £25 million must be from users based in the UK.

The Treasury expects the DST to raise an extra £400 million by the end of this year, and £500 million per year in due course.

In August, Amazon said that it would charge increased fees from sellers in the UK, as well as in other European countries where it has been hit with additional taxes. Google also announced in September that it was increasing advertising prices, effective from 1st November, for British customers to cover the costs of the DST.

In October, a report by The Times claimed that Amazon will not have to pay the two per cent DST on goods it sells directly to customers. Instead, it will be required to pay the tax only on revenues that it receives from third-party sellers using use its platform.

The report further claimed that HMRC decided not to levy the new tax on sales, which could have adversely affected traditional online retailers such as John Lewis and Tesco. That, in effect, meant that Amazon would escape paying the increased charges as the company has already announced that it would pass on the cost in higher fees to British sellers.

Since then, business groups have accused the HMRC of designing a tax that failed to ensure that Amazon pays its fair share in the UK.

"This seems to me to be absolutely outrageous," Conservative peer Lord Leigh of Hurley told the Lords in a meeting in October. He accused the government of allowing Amazon to avoid tax on its own sales through the marketplace.