A system that allows Channel Island companies to sell goods to the UK without VAT will be closed from 1 April, Guernsey's government confirmed.
Chief Minister, Deputy Lyndon Trott, said the change would have a "significant impact" on the islands.
The announcement will be made in the House of Commons by Treasury Minister David Gauke on Wednesday.
Mr Gauke said it was in response to the economic situation in the UK and representations from businesses.
The change ends low value consignment relief (LVCR) which allowed goods under £15 - such as DVDs and CDs - to be sold to UK customers VAT-free.
However, the current £15 threshold will continue to apply to other non-EU jurisdictions despite the ban on Channel Island companies.
Mr Gauke said: "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.
"We are also protecting a significant amount of tax revenue.
"By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses."
The change will mean that Channel Island companies will have to charge UK consumers for VAT on all items sold over the internet or mail order.
The changes will not affect gifts sent by individuals to people in the UK.
Deputy Trott said: "The Treasury's changed policy position on LVCR fails to differentiate between those businesses that have minimal footprint in the Island's economy from indigenous businesses.
"The short time scale and blanket approach are particularly concerning.
"We have made our views on this clear to HM Treasury, and we are working with counterparts in Jersey to continue to do so."
Jersey's Economic Development Minister, Senator Alan Maclean, said more than 1,700 people were employed in the fulfilment industry across the Channel Islands.
Richard Allen, spokesperson for Retailers Against VAT Avoidance, said the change should be welcomed by all UK businesses.
He said: "The Channel Island's VAT loophole has over many years destroyed livelihoods and caused much misery in the UK business community.
"We are of course sympathetic to those Channel Island employees who may lose their jobs as a result of the ending of this industry.
"But we think it is entirely disingenuous for commentators to blame the loss of that employment on those attempting to correct what is clearly an unacceptable, unsustainable and damaging abuse of the tax system."