9 October 2011 Last updated at 03:56 ET

Channel Islands VAT-free CD exporters face threat

Some UK record dealers say the changes do not go far enough

Businesses in the Channels Islands are braced for a change to VAT rules which will reduce their competitive advantage over rivals in the UK.

Internet-based companies in Jersey and Guernsey can sell CDs and DVDs costing less than £18 VAT-free.

But from November the threshold for VAT-free sales is being lowered to less than £15.

Business leaders in Jersey have said up to 1,000 jobs could be lost if the VAT break was removed completely.

The change is part of measures introduced by the UK Government to clamp down on tax avoidance and help music stores.

The government has said it is looking at doing even more to tackle the tax break and an announcement could be made in the 2012 budget.

And Jersey Treasury Minister Philip Ozouf indicated this week he would like a more even playing field.

He told the BBC Politics Show: "Jersey shouldn't be using kinks in the tax curve.

"We need to be building businesses which benefit Jersey but are also not harmful to the UK."

But David Warr of Jersey Chamber of Commerce said it was wrong to blame Channel Islands companies for problems facing music stores.

He said: "If we go down from £15 to zero what alternative jobs are you going to propose that people do here?"

Some UK music stores say the current changes do not go far enough.

Simon Dearmer of Bigga Records in Plymouth said: "What difference does £3 make at the end of the day?

"It's a tax loophole that makes the high street unable to compete with these internet companies.

"They need to be abolished so we are all on a level playing field."

The Politics Show, can be seen at 12:10 BST on 9 October on BBC One.