THE VAT loophole used by the Channel Islands to attract massive amounts of online business such as CDs and DVDs looks likely to be closed by the European Union and the UK parliament, putting around 1,000 jobs at risk in Jersey and Guernsey.
The UK government says the practice constitutes tax avoidance and has hinted that the issue will be tackled in the budget on March 23rd. It’s estimated to have cost thousands of jobs in the UK and hundreds of millions of pounds in lost revenue for the treasury.
The turnover of the largest company in the Channel Islands involved in the scheme is estimated at around £500 million - but it is only one of many, leading to complaints from UK retailers who have taken their concerns to Brussels. Tesco, HMV and Amazon have been operating huge warehouses in Jersey and Guernsey.
In Jersey and Guernsey, Low Value Consignment Relief (LVCR) means items priced under £18 can be sold VAT-free if they come from outside the European Union. Estimates put the lost revenue to the UK treasury at around £130 million. Around 90% of all CDs sold in the UK now arrives through the Channel Islands using the LVCR scheme.
LVCR was initially introduced to help Channel Island flower growers gain easy access to the UK market, but it is now being exploited by companies selling everything from DVDs to deodorants.
Online sales handled through Jersey and Guernsey in the last five years have risen by a massive 50% - described in the House of Lords as “an abuse of taxation and very close to an avoidance of tax.”
A debate in the House of Lords in February gained cross-party support to close the VAT loophole. The peer behind the motion, Lord Ralph Lucas, branded the industry a "smuggling enterprise".
Lord Sassoon, the commercial secretary to the Treasury, said the government was committed to tackling tax avoidance. “We are actively reviewing the operation of this relief,” he said and confirmed that the matter would be tackled in the UK budget on March 23.
Spokeswoman Maria Assimakopoulou from the EC taxation division said its findings would be released once the investigation was finished, but it was too early to comment further.
The States of Jersey said recently that it was stopping the licences of firms which distributed cut-price CDs and DVDs for major UK chain stores. As a result of the announcement, Tesco moved its mail-order operations from Jersey to Zurich in Switzerland.
