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Clampdown on VAT loophole for Online Retailers
24 March 2011
In Wednesday’s budget Chancellor George Osborne announced a clampdown on a VAT loophole that makes it more attractive for ecommerce retailers to operate and despatch low-value goods from the Channel Islands.
At present online retailers can use the Low Value Consignment Relief scheme to send goods worth £18 or less from the Channel Islands free of VAT. Items such as DVDs, CDs, Printer Cartridges, Computer Peripherals, Camera Memory, Health Foods, Fragrances and many other low value, high volume goods, all typically fall under this £18 limit meaning that companies operating from the Channel Islands don’t have to charge VAT on these products. The result is that they can offer lower prices than their mainland based competitors or free carriage on all orders or alternatively charge the same price and make more money. Osborne announced that this threshold would be reduced to £15 from November. Options would also be explored for ending the use of the loophole altogether.
Retailers Against VAT Avoidance Schemes (RAVAS) is group of UK based Internet and high street retailers affected by VAT free mail order. They claim that the Low Value Consignment Relief is an abuse of VAT relief and therefore merely a tax avoidance scheme used by retailers to gain an unfair competitive advantage. They operate a website www.vatloophole.co.uk in which they aim to highlight the facts surrounding internet companies trading from Jersey and Guernsey who utilise this VAT relief.
The LVCR scheme is currently utilised by many well-known online retailers such as Play.com, Amazon.co.uk, TheHutgroup.com (Tesco, Asda, Dixons, Argos and others) and HMV. It has been cited as one of the reasons for the demise of traditional UK based music and entertainment retailers such as Zavvi.
It is unsure as to what further action will be taken by the government to address the balance between online Channel Islands retailers and their mainland competitors but it seems that for now it’s business as usual with VAT free retailers carrying on as if nothing has happened, apparently assuming that the reduction in LVCR to £15 is the only measure that will be introduced by the UK Government.
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