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Why the Covid crisis means internet retail giants must now pay their fair share of taxes – Andrew Morrison

The coronavirus pandemic has done many things to the UK’s retail industry since arriving on our shores this time last year.

Companies like internet retail giant Amazon, founded by the world's richest person, Jeff Bezos, seen wearing sunglasses at Wimbledon in 2019, need to pay more tax, says Andrew Morrison (Picture: Mike Egerton/PA Wire)
Companies like internet retail giant Amazon, founded by the world’s richest person, Jeff Bezos, seen wearing sunglasses at Wimbledon in 2019, need to pay more tax, says Andrew Morrison (Picture: Mike Egerton/PA Wire)

With enforced closures and staff on furlough, the ability for these companies to make money from their high street stores has been killed stone dead.

But Covid-19 restrictions have also shone a light on the need for tax reform.

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In short, it is time for those web-based companies who have made a pretty penny from the stay-at-home culture to stump up the tax needed to help bail out everyone else.

Even before the virus hit, physical retailers were losing the battle with their online counterparts, with many famous names already in big trouble. The pandemic merely nudged them over the edge.

The premise for non-domestic rates and rent was once sound.

If you had a nice big store – in a prime location where you were likely to benefit from significant footfall – you had to pay both the government and the landlord more.

And that was fine, because you made the money back through all the extra trade your perfectly situated shop was doing.

The closure of Debenhams stores in Glasgow and across the UK will mean a loss of significant tax revenue (Picture: Andrew Milligan/PA)

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The right and fair thing to do

Now the government needs to come up with a way to do the same to the likes of Amazon, Asos and eBay.

A system needs to be developed, and urgently, which forces these mega-rich companies to pay the sort of tax they would be stumping up if they had city centre, gold-dust locations.

Perhaps it should be done on web traffic, which is the digital equivalent of footfall.

And a more aggressive way needs to be found to ensure that the profits these firms make from consumers in this country are taxed adequately.

This is clearly the right and fair thing to do, and there is much in it for the government too.

Take the Debenhams store on Glasgow’s Argyle Street. That space would pay something in the order of £1.2 million a year in rates. Is this money our public purse can routinely afford to lose, given its closure will be replicated all over the country?

The cash both the UK and Scottish governments have injected to help the retail industry through this unprecedented time is astonishing, but to be frank it still isn’t anything like enough.

All the support and job retention schemes do not replace the ability to open their doors and trade freely.

Businesses of all sizes can furlough their staff and save money by not ordering new stock. But they can’t furlough the landlord, and utility bills and insurance fees still have to be paid.

These enterprises are going to be on their knees for some time and, even when things do open up again, many still won’t survive.

That’s why the online retailers need to start pulling their weight.

Online retailers a lifeline for many

It’s been a great pandemic for them, watching as couch-bound customers take the money they would have spent on nights out and high street shopping splurges, and instead add items to burgeoning online baskets which make their way straight from the factory to the doorstep within days.

Let’s not be too harsh on them – for many, these websites have been a lifeline. Parents of new babies may not have been able to buy the right clothes or equipment, and vulnerable people who have spent lockdown shielding inside will have heavily depended on ecommerce for necessities many of us still take for granted.

But with increased profits must come increased contributions.

A system could be designed where an online retailer’s digital floorspace is taxed, irrespective of sales, in the same way a physical floorspace is levied.

This would get round the problem of companies who divert millions overseas meaning they have no significant bottom-line profits on their returns.

And smaller online retailers could fall beneath a tax threshold, just as small businesses can access rates relief on physical properties. This is about making sure the big dogs pay their way, not hammering SMEs who have turned to the internet in the absence of a physical trading place.

Whatever approach Scotland’s two governments take in relation to tax over the coming years, there’s no getting away from the fact they have an almighty hole to fill.

The worst of storms

These are unprecedented times, and it may be unprecedented measures are required to balance the books.

If George Osborne wanted to fix the roof while the sun was shining, the current Chancellor, Rishi Sunak, is having to rebuild the whole house in the worst of storms.

I don’t think the tax burden can fall on ordinary workers, many of whom will be hanging to their jobs by the fingertips, with significant numbers on low to moderate wages anyway.

And it can’t fall on high street businesses who’ve been blindfolded with both hands tied behind their back because of the pandemic.

When they do open up, they’ll probably be expected to make even further investment in social distancing measures and PPE for staff.

That leaves the virtual shops for whom Covid-19 has represented a boomtime.

Fortunately, they’re starting from a low base, so even forcing them to pay their fair share will represent a huge uptick in tax receipts received by the Treasury.

Many will argue these levers should have been installed long before the pandemic.

But now everything’s being shaken up, the government must finally act to end the discrepancies, and get us all back on the road to financial sustainability.

Andrew Morrison is director of MCC Accountants

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