Online marketplaces such as Amazon and eBay could be made responsible for collecting tax owed by the sellers who use them, under plans reportedly being drawn up for John Healey's first budget.

The move could raise up to £1bn more a year for the Treasury, according to a report in The Times. The money would reportedly be used to fund cuts to business rates for high street shops.

The budget is due on 28 October.

Closing a loophole

Since 2021, online marketplaces have been required to collect VAT on behalf of overseas businesses selling goods into the UK. But some foreign operators have avoided the rule by posing as British retailers, using shell companies or other techniques.

Under the proposed change, websites would be responsible for collecting VAT at source for any retailer on their platform with annual turnover of more than £90,000 – the VAT registration threshold – no matter where that business is based.

That would shift the burden of collection from thousands of individual sellers, some of which are hard for HM Revenue and Customs to trace, to a handful of large platforms.

A consultation over the summer

The government ran a consultation over the summer on changing what are known as the "deemed reseller" rules. It said "non-compliance persists among both overseas and UK-based businesses, distorting competition and disadvantaging compliant firms online and on the high street".

The consultation also included food delivery platforms as well as retail marketplaces, suggesting ministers were considering drawing them into the system too.

Amazon welcomes the change

In a notable twist, Amazon, the UK's biggest online marketplace, said it welcomed the prospect of reform. "Closing this loophole will raise significant revenue for the exchequer and simplify compliance for both HMRC and legitimate sellers," the company said.

Large platforms have long argued that they are undercut by sellers who do not pay their share of tax, and that a clearer system would make life easier for honest traders.

Smaller marketplaces may be less enthusiastic. Building the systems to calculate, collect and pass on VAT for every qualifying seller is costly, and critics warn that some of that cost could be passed on to consumers.

Pressure from the high street

The plan comes amid growing pressure on the prime minister, Andy Burnham, and his chancellor to help small businesses before the budget.

Before he was elected in Makerfield, Mr Burnham said he would raise the threshold for business rates so that 140,000 small high street retailers would no longer pay the tax.

Retailers have argued for years that the business rates system punishes physical shops while online competitors operating from warehouses pay comparatively little. Using money raised from online platforms to cut rates for shops would be a political as well as a fiscal statement.

A tight budget

Mr Healey faces difficult choices. The Institute for Fiscal Studies has said the damage from higher inflation means the chancellor will need either to top up funds for his current spending plans or impose deep real-terms cuts by the end of the decade.

The International Monetary Fund has urged him to "stay the course" on repairing the public finances. Silvana Tenreyro, the IMF's economic counsellor, said the UK "stands out" among G7 countries for having a plan to narrow its deficit.

Measures that raise money by improving tax collection, rather than raising tax rates, are attractive to chancellors because they are easier to defend politically.

The Treasury's response

A Treasury spokesperson said: "As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events rather than routinely commenting on rumour, speculation or proposals."

For high street traders, however, the direction of travel is welcome. After years of closures, they will be watching closely on 28 October to see whether the chancellor finally shifts the balance between the shop on the corner and the parcel on the doorstep.