There was significant noise pre-Budget about the pressures bricks and mortar retailers are under. The recent Budget has provided some light relief but it doesn’t look like the underlying issues are being resolved.
Three potentially pertinent announcements were made:
- A 1/3 reduction in business rates for small businesses.
- A new digital services tax of 2% on revenues from search engines, social media and online marketplaces.
- A £675m 'Future High Streets Fund' to invest in high street infrastructure.
Business rates have been a key issue raised by property-intensive bricks-and-mortar retailers. In that context the 1/3 reduction for small businesses is clearly good. But it doesn’t do anything to help larger businesses which provide the majority of employment in the sector and whose struggles have been the ones making headlines in recent months. The relief is also only for two years. That means that small retailers will be back in the same boat in no time at all, or that the government might find itself pressured to make the relief permanent.
Aside from having a lot of property, the unique challenge business rates presents to retailers is the additional burden it places on bricks-and-mortar relative to online. In that context the announcement of a new digital services tax does nothing to address the imbalance. The tax is mainly targeted at digital giants like Google and Facebook who offer search engines and social media.
It is true that online marketplaces will also pay the tax, but only on the commission revenue such marketplaces receive. The tax on those sales will be relatively small. For example, if an online marketplace charges a 10% commission, a 2% revenue tax on that commission amounts to a 0.2% tax on the total revenue passing through the marketplace.
All of that is a far cry from making sure all goods are taxed the same amount regardless of how they are sold.
The final announcement will undoubtedly be welcome, but £675m over 5 years is a relatively small sum in the grand scheme of things (business rates raise £30bn each year) and is unlikely to lead to any step change in the fortunes of the high street.
The debate over what we should do to support a thriving high street has been going on for some time now and it looks like this Budget won’t be the final word on the matter.
Frontier regularly advises clients on these and other tax issues.
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