Treasury to close loophole that allows VAT-free DVDs

Packages being sorted before posting Many big retailers have opened warehouses in the Channel Islands

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The government is to change the tax rules that have allowed retailers to avoid paying VAT by sending goods from the Channel Islands.

Low Value Consignment Relief (LVCR) will not apply to goods sent from the Channel Islands to the UK from 1 April.

The loophole has been used increasingly in recent years by companies selling CDs and DVDs online, such as, Tesco and Amazon.

The government said the loophole was now costing £140m a year.

The chief minister of Guernsey, Deputy Lyndon Trott, said the change would have a "significant impact" on the islands.

The maximum price of the goods allowed under LVCR was cut from £18 to £15 on 1 November following an announcement in the Budget in March.

"These reforms will ensure that UK companies, especially small and medium-sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands," said David Gauke, Exchequer Secretary to the Treasury.

LVCR was originally established as a VAT exemption for goods coming from outside the EU. The idea was to prevent EU members having to collect small amounts of VAT, when collecting it would cost more than it was worth.

'Moral market'

The problem has been that as the Channel Islands are outside the EU, big retailers have been sending low-price goods to the Channel Islands and then having them sent back individually to customers in the UK.

The government said that LVCR will continue to apply to goods coming from other countries outside the EU.

"The removal of this major market distortion should be welcomed by all UK businesses that wish to trade online," said Richard Allen, spokesperson for Retailers Against VAT Avoidance, a group that has campaigned against LVCR.

"The VAT Loophole is not only contra to the basic principles of EU VAT law but is also contrary to any sense of fair play and a 'moral market'."

Jersey's Economic Development Minister, Senator Alan Maclean, said more than 1,700 people were employed in the fulfilment industry across the Channel Islands.

Channel Island legislators are worried about the amount of notice they have been given of the closing of the loophole.


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  • rate this

    Comment number 314.

    Go to most boot sales around the country and you will find all the latest DVDs and CDs for about £1.50 each, week after week without fail.

    When will the powers that be shut down these illegal sellers who pay no taxes what so ever, fuel the black economy and do far greater damage than the VAT in the Channel Islands?

    Bootleg DVDs and CDs have been available this way for years and years. Why?

  • rate this

    Comment number 310.

    I work for a small online business in the UK, I have to let people go because of their prices start at -20%. It will be difficult for those families, however it has been very difficult for thousands of families in the UK for long time and all thanks to that law, it's time to be fair. Fair play for everyone, either everyone pays VAT or not. Why they shouldn't and we should?

  • rate this

    Comment number 300.

    While I agree with closing ALL tax loopholes, why this one in particular?
    £140 million should keep the country going for a few minutes! How about the billions lost to compnies claiming that their huge empire is run from a PO box in the Bahamas. Not wanting to bite the hand that feeds you!! How much have our leaders got stashed away in tax-free accounts, while saying we're all in this together?

  • rate this

    Comment number 208.

    1700 jobs in is nothing compared to the job losses on the UK mainland because of this over the last decade. Goods being shipped out of the UK and back again purely to avoid VAT has profited a few big business owners at the expense of many thousands of jobs in England. 500+ record shops have closed including internet only ones, countless more in other industries. Amazed this has taken so long!

  • rate this

    Comment number 201.

    I accept that 1700 jobs may well go, but they are only there in the first place due to a market distortion from a VAT exemption. These 1700 jobs were probably created at the expense of mainland UK business. If they go then the jobs should simply shift back to the most competitive sellers. If the Channel Islands are competitive,then the jobs will stay.

    Steven Quas Collins


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