UK Budget could shift VAT collection to Amazon, eBay and Temu

Amazon, eBay and Temu face possible VAT collection duty

Large online marketplaces could become responsible for collecting VAT owed by retailers on their platforms under a measure being considered for the UK Budget, BBC Business reports. The proposed change would affect businesses including Amazon, eBay and Temu, shifting responsibility for tax collection away from individual sellers. Reports cited by the BBC suggest it could bring in around £1bn a year.

The proposal sits alongside potential increases in taxes on banks and electronic gambling machines. According to BBC Business, those three measures could together generate a maximum of about £3.5bn annually. None is presented in the reporting as a confirmed Budget decision.

The Treasury’s room for manoeuvre may have narrowed considerably. Economists cited by BBC Business estimate that the government’s fiscal buffer could have fallen from roughly £24bn to as little as £11bn over six months. That buffer measures the margin available to meet its borrowing rules, rather than money already allocated to spending programmes.

For banks, Tax Policy Associates estimates that increasing the corporation tax surcharge from 3% to 5.5% could produce another £1bn to £2bn a year, BBC Business reports. Separately, the Social Market Foundation estimates that doubling the duty on electronic gaming machines from 20% to 40% could raise between £275m and £460m, depending on changes in gambling behaviour.

Borrowing costs and unpaid VAT shape the options

Higher interest rates on government borrowing are partly responsible for the erosion of the fiscal buffer, according to BBC Business. Restoring that margin would help demonstrate that the government remains on course to reduce borrowing by the end of the Parliament, while ministers also face demands for support with living costs and additional defence spending.

Labour’s 2024 election manifesto committed the party not to increase income tax, VAT or National Insurance rates. BBC Business reports that government sources have also ruled out higher capital gains taxes and an extension of the mansion tax, narrowing the range of revenue-raising options under discussion.

The marketplace proposal targets tax compliance rather than the VAT rate. The Treasury estimates that approximately £12bn of VAT due from companies goes uncollected each year. Tax experts cited by BBC Business say online sellers account for part, but not all, of that shortfall: some fail to charge VAT when required, while others collect it from customers without transferring it to the government.

Cross-border trading can complicate enforcement. According to BBC Business, some overseas businesses selling through platforms falsely claim to be established in the UK. Other sellers shut companies and resume trading under new names to avoid outstanding tax liabilities. Moving collection to the marketplace would address evasion that can be difficult to pursue seller by seller.

Banks enter the Budget debate after several years in which higher lending rates have supported stronger profits, BBC Business reports. An increased surcharge would initially leave less profit available for shareholders, including pension funds holding bank shares. The exposure therefore extends beyond wealthy individual investors to ordinary savers with indirect stakes in lenders.

Electronic gambling machines operate in betting shops and adult gaming centres, with some offering winnings of £500 per game. BBC Business cites Social Market Foundation research finding that the machines are increasingly concentrated in deprived high streets, and that one in four people playing casino games on them gamble at risky or harmful levels.

Amazon backs reform as banks and bookmakers warn of costs

Amazon supports making marketplaces responsible for VAT collection and estimates that the change could generate £700m a year for the government, according to BBC Business. Its estimate is lower than the roughly £1bn figure in reports about the proposal, underlining the uncertainty over the eventual revenue yield.

Bank executives widely expect an increase in their sector’s tax burden, BBC Business reports. Lenders warn that additional taxation could discourage investment in the UK and put jobs at risk. That debate is relevant to a market where lenders are still pursuing growth, including LHV Bank’s UK lending expansion.

Former prime minister Gordon Brown has urged the chancellor to increase the tax on electronic gaming machines because of the harm associated with problem gambling, BBC Business reports. Anti-gambling groups argue that any deterioration in the odds offered to players could discourage use of the machines.

The gambling industry takes a different view. According to BBC Business, it argues that higher duty could make betting shops less profitable and force closures. Bookmakers also warn that a smaller shop network could reduce their contributions to horse racing, threatening employment beyond the gambling premises directly affected.

Welfare spending is another contested part of the fiscal debate. BBC Business reports that the Conservatives claim restrictions on benefit access could save £36bn annually, while Reform puts its proposed savings at £50bn. Independent analysts question whether reductions on that scale are realistic.

Previous attempts to cut spending illustrate the political constraints. BBC Business reports that Keir Starmer and Rachel Reeves sought annual savings of £5bn by 2030 from working-age health and sickness benefits, but reversed course following opposition from Labour backbenchers. Campaigners warn that reducing health and disability payments could push existing or future recipients into poverty.

Wednesday’s Budget will test revenue gains against business costs

The Budget is due on Wednesday, according to BBC Business. For online sellers, the significance of a marketplace collection requirement would extend beyond administration: businesses currently meeting their VAT obligations would face less competition from sellers illegally avoiding the tax. Some affected retailers could instead increase prices or leave platforms, changing the range and cost of products available to shoppers.

Companies seeking UK finance could also face indirect effects from a bank tax increase. Research cited by BBC Business suggests lenders may pass some of the cost to customers through higher borrowing charges or lower savings rates. The distribution of that burden would determine how far the measure affects businesses beyond banking shareholders.

Welfare is unlikely to offer a straightforward source of immediate savings. BBC Business cites Office for Budget Responsibility projections showing spending on working-age health and sickness benefits rising from £68bn this year to £81bn in 2031. Independent welfare specialists and economists say lasting reductions may require initial investment in employment support, potentially offsetting near-term Treasury savings. Where that support helps claimants into work, their incomes could be maintained or increased.