The online parcel delivery expert ParcelHero says Chancellor Philip Hammond’s proposal to tax digital businesses’ revenues rather than profits in his Spring Statement this week puts Britain at odds with other countries’ taxation rules; and his crackdown on online sellers avoiding VAT could also open a can of worms.

Says ParcelHero’s Head of Consumer Research, David Jinks MILT ‘It’s a double whammy of changes that could leave many online businesses baffled and both traders and consumers potentially paying duties twice.’

David comments: ’Chancellor Hammond’s Spring Statement may have been reasonably brief, but it included two bombshell announcements: a further review into the taxation of large digital businesses, and proposals for a new VAT collection mechanism for online sales. ‘

Explains David: ‘‘A new VAT collection mechanism is a great idea in theory. It’s long been a bone of contention that Chinese traders, for example, can undercut British retailers because they don’t pay UK VAT. And businesses masquerading as individuals to avoid tax when selling goods on marketplaces such as eBay have long angered legitimate online retailers.’

‘But the devil’s in the detail,’ says David. ‘It seems plans for a “new VAT collection mechanism for online sales” amount to demanding marketplaces such as Amazon administer the VAT on a UK sale – taking the payment out of the hands of the seller. It’s thought the Government is considering extracting VAT in real time at the point of purchase using payment technology, and paying the tax payment directly to HMRC, a process referred to as ‘split payment’. It might be Amazon or PayPal, for example, who perform this task.’

Warns David: ‘It’s clearly a blunderbuss solution. Overseas-based traders already paying tax in their home country may also have VAT taken automatically on goods in the UK as well – and that is a cost that will end up being paid by British shoppers. If the annual value of an EU retailer’s distance sales into the UK is less than the UK distance selling threshold, £70,000, they will already charge VAT at the rate that applies in their own country and account for the VAT there too. Introducing further automated UK VAT payments is going to seriously complicate this process.’

David further warns: ‘UK private sellers that are not businesses do not need to pay VAT – and in fact there is a £1,000 tax free allowance for selling online. If the likes of Amazon were to automatically deduct VAT from all sales automatically and pass it on to HMRC, private sellers would then be made to prove they were eligible to claim it back.’

David adds: ‘The latest proposal for taxation of digital businesses, though very welcome in principle, seem equally contentious in practice. By introducing changes that will tax the likes of Amazon and eBay “where they create value’” opens a can of worms and could mean shoppers and traders pay duties twice on some products.

‘We may be facing a period of double taxation, as some countries like the UK apply taxes on turnover and others continue taxing profits.’

‘Let’s face it,’ concludes David, ‘EU cross border taxation is a minefield currently – and these latest plans from the Chancellor do nothing to simplify the situation’.