In recent years customers of online music and video retailers may have noticed that many of their packages are shipped from the Channel Islands, usually from Jersey and Guernsey. Big online retailers including HMV, Play, Amazon and Tesco all have warehouses located in the Channel Islands.
VAT Loophole on the Islands
The location of warehouses owned by these internet giants is far from a coincidence and has to do with financial reasons. Low Value Consignment Relief (LVCR) was introduced in 1983. The aim of the scheme was to save costs to the government. LVCR meant that items that were sent from outside of the EU to the UK and had a value below £18 would not be eligible for VAT. The reason behind this was that the Treasury Department claimed that the administration costs to chase the VAT owed on low value items outweighed the amount of revenue that would actually be collected.
Problems arose due to the fact that under LVCR, the Channel Islands are classed as being outside of the EU. The BBC stated that the Treasury now estimates that the loss of VAT payments coming from internet firms based on the Channel Islands is losing the government around £140million per year.
On November 1st 2011, the government cut the value of goods exempted under LVCR from £18 to £15 as previously announced in the budget in March, but this wasn’t enough to alleviate the problem as most DVD’s and CD’s bought on the internet have a retail value of below £15.
From 1st April 2012, goods sent from the Channel Islands to the UK will no longer qualify under the rules of LVCR. Goods sent from other countries outside of the EU will remain unaffected.
Fair Play Trading
As well as increased revenue for the government it is hoped that the removal of the VAT loophole will mean a much fairer market for online retailers within the UK. Smaller online retailers have found it difficult to compete with the giants such as Amazon and Play in part due to their inability to relocate warehouses to the Channel Islands like the big players.
The larger companies have been sending large consignments of media goods out to the Channel Islands and then shipping them individually to customers as orders came i,n meaning that these goods were not exempt from VAT.
Although the abolishment of LVCR on goods arriving from the Channel Islands will mean a much fairer market for UK-based online companies, there will of course be those who lose out. It is too early to say how many of the reported 1700 people employed by online retailers in the Channel Islands will be affected and it will also be some time before customers buying from these big retailers find out if they are to bear the brunt of these increased costs.
David Myerscough - David, a Business Studies graduate from the UK began his professional writing career in early 2010. Currently, David writes for online ...
