The UK government is set to introduce a tax crackdown targeting online retailers as Chancellor John Healey prepares to deliver his first budget on October 28. The new measures will require large online marketplaces, including Amazon, eBay, and Temu, to take responsibility for collecting value-added tax (VAT) owed by retailers operating on their platforms. This move aims to curb VAT avoidance, particularly by mainly foreign sellers who use loopholes to evade the tax, and is expected to raise up to £1 billion for the Treasury.

Under current arrangements, numerous sellers, especially those operating through shell companies registered in the UK but controlled by foreign entities, have exploited lax enforcement to avoid paying the 20 percent VAT. Recent reports indicate that tens of thousands of UK shell companies have been set up by Chinese citizens to obtain VAT numbers and register as sellers, only for these companies to be closed down before VAT payments are required. The government stresses that there is no suggestion of wrongdoing by the marketplaces themselves.

The new regulations will make online platforms responsible for collecting VAT in cases where business sellers have an annual turnover exceeding £90,000. Some critics have called for the threshold to be lowered to prevent continued abuse, though ministers decided against this, citing lobbying from the Federation of Small Businesses. Tax experts have welcomed the move as a positive step but suggest that further powers should be granted to ensure the full collection of VAT on marketplace sales.

Chancellor Healey signaled that revenues generated from these tax changes would be directed towards reducing business rates for small high street retailers. Greater Manchester Mayor Andy Burnham has committed to raising the business rates threshold to exempt around 140,000 small businesses, including high street shops such as beauticians and tradespeople, which would cost approximately £880 million. A Treasury source underlined the government’s goal to protect local family businesses and bolster the high street sector.

The upcoming budget faces significant financial constraints due to external factors, including the economic impact of the ongoing conflict in Iran, which has halved the government’s fiscal headroom. While the International Monetary Fund recently noted that the UK economy has shown resilience, it urged the government to maintain plans for debt reduction, even if this requires further tax increases. Within this context, some Labour MPs are pushing for hikes in capital gains tax and bank levies, though Healey has expressed determination to avoid repeating the extensive tax and spending measures implemented by his predecessor, Rachel Reeves. Instead, he plans to emphasize fiscal discipline and economic resilience amid rising energy prices.

Ahead of the budget announcement, Healey and Burnham met with representatives from Britain’s largest retailers to discuss proposals, including concerns raised about a potential “warehouse tax” on major retail operations. Industry executives reportedly left the meeting feeling reassured that such a tax would not be implemented. A spokesperson for the Treasury reiterated that tax decisions will be outlined by the chancellor during forthcoming fiscal events.

Amazon, which already collects VAT from some foreign sellers, welcomed the government’s plans, noting that closing the current loophole will raise substantial revenue and simplify compliance for tax authorities and legitimate sellers alike.