John Healey plots £1billion VAT crackdown on major online marketplaces to fund high street tax cut

Online marketplaces would be responsible for collecting VAT when customers buy from business sellers whose annual turnover exceeds £90,000, under the plans reported by The Times.

The proposal aims to tackle a loophole used mainly by overseas sellers to avoid paying VAT, taking advantage of weak enforcement.

Mr Healey expects the change to raise up to £1billion, which would fund cuts to business rates for high street shops.

Concerns about tax avoidance by overseas retailers have grown in recent years, particularly over Chinese sellers setting up sham UK companies.

Chinese nationals have set up tens of thousands of shell companies in the UK, using their VAT registration numbers to appear as British sellers on online marketplaces. The accounts are then abandoned before tax demands arrive.

MPs on the Public Accounts Committee have accused HMRC of failing to take the issue seriously enough. They warned that overseas sellers exploiting gaps in enforcement were undercutting British businesses.

In 2025, the committee said the estimated £5.5billion lost each year through these practices could be just the “tip of the iceberg”.

There is no suggestion that the online marketplaces themselves have acted improperly.

During the Makerfield by-election, Prime Minister Andy Burnham pledged to raise the business rates threshold so that 140,000 small high street shops would no longer have to pay the tax at all.

The commitment was estimated to cost around £880million.

Mr Burnham said at the time that he wanted to support family-owned businesses, which he described as the “heart and soul of this country”, and give them “the chance to thrive”.

A Treasury source explained that Mr Healey’s goal was to “protect local family businesses and the high streets we love”.

The source added: “That means having the beauticians and white van drivers of our towns at the forefront of his mind as the Budget draws nearer.”

Mr Burnham had previously suggested funding the business rates relief by imposing a new tax on out-of-town warehouses, but ministers have now abandoned that idea following fierce opposition from retail leaders.

John Lewis executive chairman Jason Tarry said last week that a warehouse levy would “reveal a fundamental misunderstanding of how modern high streets work”.

Industry figures warned that taxing warehouses would inevitably drive up costs for retailers and ultimately lead to higher prices for consumers.

The decision to target online sellers instead is likely to sit more comfortably with the retail sector, which has long argued that bricks-and-mortar shops face an unfair tax burden compared with their digital rivals.

Amazon said it backed the proposal, estimating it would raise roughly £700million for the exchequer.

An Amazon spokesman said: “Closing this loophole will raise significant revenue for the exchequer and simplify compliance for both HMRC and legitimate sellers.”

Dan Neidle, founder of Tax Policy Associates, cautioned that the £90,000 threshold leaves room for continued abuse.

He said: “This is a step in the right direction but the Treasury needs to go further and make online marketplaces responsible for collecting every penny of VAT on the sales made on their platform.”

He warned: “Unless that happens these Chinese sham companies will find just another way around the rules.”The Budget is due on October 28, with Mr Healey facing a challenging fiscal backdrop. The Institute for Fiscal Studies said on Monday that the Chancellor confronts a £35billion bill to maintain current spending commitments and increase defence funding to 3 per cent of GDP by 2030.

The IMF has urged Mr Healey not to pursue unfunded giveaways, while he has already ruled out raising capital gains tax to match income tax rates.