UK Set to End Tax Advantage for Online Retailers in Budget Overhaul

Budget Move Targets Import Duty Disparity

The Treasury is reportedly preparing to close a significant tax loophole that has allowed overseas online retailers to avoid import duties on small packages, according to government sources familiar with the matter. Chancellor Rachel Reeves is said to be targeting the measure as part of her November 26 Budget announcement as she seeks to strengthen public finances.

Budget Move Targets Import Duty Disparity
The £135 Threshold Loophole
Retail Industry Pressure
International Precedents
Shein’s London Listing Withdrawal
Potential Consumer Impact

The £135 Threshold Loophole

Currently, international retailers can send packages valued under £135 to UK customers without paying import duties, a provision that analysts suggest costs the exchequer between £400 million and £600 million annually. The British Retail Consortium’s pre-Budget submission indicates the value of these small packages surged by 53% to £5.9 billion last year, up from £3.9 billion the previous year.

Industry experts have long argued this system creates unfair competition, particularly as Chinese retailers Shein and Temu have dramatically expanded their UK operations. The average import duty rate for clothing stands at 12%, giving overseas retailers who bypass these fees significant pricing advantages over domestic competitors.

Retail Industry Pressure

Major UK retailers including Next, Sainsbury’s, Primark, Superdry and Currys have publicly campaigned for reform, arguing they face unequal treatment when importing goods for domestic customers. Alex Baldock, CEO of electronics retailer Currys, encapsulated the industry position stating that businesses selling to UK consumers should “abide by UK standards, and pay UK tax just as UK retailers do.”

The British Retail Consortium has emphasized that the current system not only creates unfair competition but results in significant lost government revenue at a time when public finances are under pressure., according to technology insights

International Precedents

Government officials indicate the Chancellor was swayed to act partly because similar reforms have already been implemented in the United States and Europe. One person familiar with the situation noted that “the world is now coming to its senses” regarding the tax treatment of low-value imports., according to expert analysis

In the United States, former President Donald Trump eliminated the comparable “de minimis” rule that exempted goods worth less than $800 from import duties. That move was reportedly driven by both trade fairness concerns and efforts to prevent illegal substances from entering the country through postal channels., according to market analysis

Shein’s London Listing Withdrawal

According to reports, the political debate around closing the loophole became less complicated after Shein abandoned its plans for a London stock exchange listing. The Chancellor had previously been keen to secure the estimated £50 billion fast fashion flotation as a boost for the City of London’s financial sector.

Shein ultimately switched its listing plans to Hong Kong after facing resistance from Chinese authorities, who play a crucial role in the company’s access to approximately 5,000 manufacturing factories in Guangzhou.

Potential Consumer Impact

While the move would benefit UK retailers and Treasury revenues, some smaller businesses have expressed concerns that eliminating the tax advantage could lead to higher prices for consumers who have grown accustomed to low-cost goods from international online retailers.

The Treasury has confirmed it is reviewing the customs treatment of low-value imports after listening to concerns from British retailers about competitive disadvantages. In a statement, officials noted: “We are a pro-business government that is backing Britain’s high-streets by protecting and extending business rates relief that would have ended without our action.”

With the Budget announcement scheduled for November 26, industry observers suggest the loophole closure appears increasingly certain, potentially marking a significant shift in the competitive landscape between traditional retailers and international e-commerce giants.