Rachel Reeves is reportedly planning to close a tax loophole in her budget next month that allows overseas retailers including Shein and Temu to send small packages to the UK without paying any customs duties.
The arrangement, central to the business model of the online marketplaces where almost all sellers are based in China, has been criticised by British high street chains that complain it creates an uneven playing field.
Currently, parcels containing goods worth up to £135, known as “low-value imports”, can be imported without incurring any customs duty. Goods worth more than £135 can incur a duty of up to 25%.
Reeves will use her 26 November budget to close this loophole, which experts say costs the industry as much as £600m a year, according to a Financial Times report quoting unnamed government officials.
The chancellor said in April that she was reviewing the customs treatment of low-value imports, after similar moves by the US and the EU.
Some of Britain’s largest retailers including Next, Sainsbury’s, Currys, JD Sports and Superdry have called on ministers to change the rules, saying it hands an unfair advantage to their international competitors at a time when domestic companies have to pay to import products to sell to UK consumers.
This summer the US abolished its “de minimis” exemption, a similar arrangement to the UK’s, under which goods worth less than $800 (£600) were allowed to skip import duty, to limit the rise of low-cost online marketplaces such as Temu and Shein.
The EU began to tighten controls on low-value imports in July and customs duty is expected to be applied from 2028.
The moves by the US and EU have prompted concerns that low-cost products from Chinese retailers and manufacturers could be dumped in the UK if it does not also change its customs treatment of small packages.
Low-cost Chinese retailers, which are widely promoted on social media, are soaring in popularity. The value of small parcels worth less than £135 shipped from China to the UK more than doubled over the last financial year, from about £1.3bn in 2023-24 to about £3bn in 2024-25, according to the BBC.
Meanwhile, 4.6bn small parcels entered the EU last year, equivalent to 12m a day. More than 91% of those valued below the previous EU customs duty threshold of €150 (£130) came from China, where Temu and Shein make and dispatch most of their goods.
In February the chair of JD Sports, Andy Higginson, called on the government to close the loophole to ensure a “level playing field” for all retailers in the UK.
“We don’t want anyone to have an unfair advantage,” he said. “There is also a moral case for paying tax in the UK if you are taking money from UK consumers and to contribute to schools and roads and other things.”
Temu’s EU operations more than doubled its pre-tax profits in 2024 to just below $120m (£90m), compared with $44.1m the year before, according to recently filed accounts. The company employed only eight people and paid only $18m in corporation tax.
The Singapore-headquartered Shein recently reported a 20% rise in global revenues to $37bn but a fall in pre-tax profits as it faced higher seller and marketing costs, even before it felt the impact of US tax changes. The fast-fashion retailer is thought to be trying to list on the Hong Stock exchange, after its previous efforts to list in the US and the UK went awry.
Andrew Opie, the director of food and sustainability at the industry body the British Retail Consortium, said it was “time for the chancellor to act on her review” before the key Christmas trading season.
“British retailers and the UK high streets face unfair competition from foreign sellers who are using the de minimis rules to import goods without the need to pay UK taxes. This also can expose UK consumers to unregulated, potentially unsafe products,” he said.
A government spokesperson said: “The chancellor is reviewing the customs treatment of low-value imports after listening to concerns from some of Britain’s best-known retailers that it leaves them at a disadvantage compared to overseas competitors.”
