Do Online Businesses Have an Unfair Advantage?

24th November 2025

High-street shops, cafes, salons, and small local businesses pay business rates based on the rateable value of their physical premises.

Online retailers, meanwhile often operate from cheaper warehouses in out-of-town industrial parks.

Thy may use multiple distribution centres, each assessed at lower rates per square foot and require far smaller retail-facing real estate.

A single independent shop on the high street may pay MORE in rates than a huge online retailer serving the entire country from low-cost logistics centres.

Many business owners and analysts say this creates a structural disadvantage for traditional retail.

The High Street Bears the Weight of an Outdated System

Business rates were designed decades ago when:

Retail = physical shops

Logistics space was peripheral

Footfall drove sales

Now

Online sales take a huge share of the market

Distribution warehouses are essential but taxed at relatively low levels

High streets are struggling with empty units and declining footfall

Yet the tax system still places most of the burden on physical premises.

Do Online Giants Pay "Proportionately" Less?

In many cases, yes.

A major online retailer may generate hundreds of millions in sales but operate from:

A few warehouses

No expensive high-street frontage

Whereas a small shoe shop or bakery might:

Bring in £250,000 a year

Pay £20,000+ in rates

This creates the impression and often it is the reality that digital-first companies get off lightly.

Should There Be a Tax on Digital Sales?

This idea has been floated many times, sometimes called:

Online Sales Tax

Digital Services Tax

E-commerce Levy

Tech Giants Tax

Potential Pros

✔ Levels the playing field
✔ Helps ensure online retailers contribute fairly to local services
✔ Supports high-street regeneration
✔ Harder for global firms to shift profits abroad to minimise tax

Potential Cons

❌ Could raise prices for consumers
❌ Hard to define what counts as an "online sale" (e.g., click-and-collect?)
❌ Complex to administer
❌ Might hit UK-based SMEs selling online, not just big tech

Other Proposed Ways to "Even the Playing Field"
Reform business rates entirely

Some proposals include:

Replace business rates with a turnover-based tax

A land value tax

Lower high-street rates but increase distribution warehouse rates

Heavier taxation on large fulfilment centres

Since online retail depends heavily on logistics, some argue these should be taxed at similar levels to shops.

Zero or reduced business rates for small independent shops

This already partially exists (Small Business Rate Relief), but some say it does not go far enough.

Levy on ultra-large digital platforms only

Avoid penalising small online sellers.

Finally

Yes, online businesses have advantages baked into the current system because:

They use less expensive real estate

They don't rely on high-footfall streets

Business rates fall unevenly and unfairly

If the goal is a fair, sustainable retail ecosystem, then some form of digital taxation or rebalanced rates system is likely necessary.

But the challenge is:
Designing a system that targets large online retailers and multinational platforms without harming:

Small online businesses

Hybrid shops

Local entrepreneurs who sell partly online

A carefully targeted approach — not a blanket digital tax is probably the most workable.

A fair compromise often proposed

Reform business rates to reduce the burden on physical shops

Introduce a modest, carefully targeted online levy on large multinational digital businesses

Protect small online traders

Use revenue to support high-street regeneration

Will any changes come before even more shops and small businesses disappear from Caithness and other rural places.