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Chancellor will review tax on digital businesses

The chancellor, Philip Hammond, has promised to review the way digital businesses are taxed, to offset the business rates pressures felt by bricks-and-mortar retailers.

In a letter to MPs first published by The Telegraph, Hammond admitted that business rates can be a heavy and troublesome burden for retailers, saying: “the government recognises that business rates can represent a high fixed cost of some businesses.”

He also said that efforts would be made to “find a better way of taxing the digital economy,” to lessen tax advantages for online retailers compared with those who have physical stores.

However, the chancellor rejected recent calls to overhaul the business rates system entirely, saying that business rates support the stability of local government funding.

The Commons treasury select committee has called for an overhaul to business rates. Committee chair MP Nicky Morgan sent a letter to the chancellor in June flagging “increasing concern” from MPs that the business rates system may no longer be “fit for purpose” as a slew of company voluntary arrangements (CVAs) and store closures continues to trouble the high street.

The New West End company, which represents more than 600 businesses in London’s West End, including Selfridges, Marks & Spencer and Fenwick, similarly urged the government to enforce a new online sales tax to ease the burden of business rates in a report released yesterday. It suggested that a 1% tax on online businesses’ revenues could provide more than £5bn relief for high street retailers’ rate bills.

A government spokewoman told Drapers: “High streets and small businesses are the backbone of our economy - we want to see them thrive now and into the future. That’s why we’ve introduced more than £10bn of business rate support, so many businesses now pay no rates and we’re reducing annual rises which is worth a further £4.1bn - helping shops and restaurants across the country.” 

“But we know there’s still a lot to do and over the summer, we will launch a call for evidence and establish an expert panel to diagnose the issues currently affecting the health of our high streets and advise on the best approach for their revival.”

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