The Treasury is currently reviewing the possible implementation of an online sales tax (OST) in order to 'rebalance' the taxation between online and in-store retail.  

The growth of online retail and the decline of the in-person high street shopping, have been of course accelerated by the pandemic. This led some to ask if traditional retailers are bearing an unfair cost and tax burden in comparison to online competitors. 

The idea is that an OST would tackle this imbalance and create a more equal tax environment for physical, bricks and mortar retailers and online retailers. The idea, the Treasury says, is not to discourage online shopping, but actually to use the revenues generated by an OST to reduce business rates for retail properties. 

Earlier this year, a consultation was launched with the aim of exploring the arguments for and against an online sales tax.  

However, the Charity Retail Association (CRA) in its individual response to the consultation warned that applying an online sales tax to donations would impact on funding for charities. At the moment, online sales represent a relatively small part of charity retail revenue. However, pandemic-induced lockdowns meant lots more charities had to increase their online presence, with online sales expected to grow further in the coming years in line with the general shopping trend of increasing online purchasing. Research by the CRA shows that 75% of charity retailers are now selling online compared to 55% pre-pandemic.  

Responding jointly to the consultation, the CRA, the Charity Tax Group (CTG) and the National Council for Voluntary Organisations, called for the government to give charities exemption from the tax.  

Head of public affairs at the CRA, Jonathan Mail, said: “It is vital that an online sales tax avoids taxing charitable donations. The best and simplest way to achieve this is to ensure that all online sales by charities are outside the scope of this new tax.  Imposing the new tax on the online sale of goods donated to charity would reduce the value of the public’s generous donations and generate considerable extra complexity for charity retailers. We are encouraged that the government’s consultation considers the option of exempting all online sales by charities from this new tax and are pressing them to take this course of action to protect funding for good causes.”   

The sector is watching and waiting for the results of the consultation, and hoping that an online sales tax intended to rebalance the tax burden faced by the high street, does not in turn create a tax burden for charities which does not exist now.