Channel Islands VAT loophole to close
Customers will no longer be able to benefit from cheaper DVDs and CDs sent via the Channel Islands, says the government.
A tax loophole that allows companies to send goods under £15 VAT-free to the UK from the Channel Islands is to be closed by the Treasury.
Companies including Play.com, Tesco and Amazon have taken advantage of Low Value Consignment Relief (LVCR) to sell items 20% cheaper than mainland competitors.
The government says it wants to "end the exploitation" of LVCR, which is costing the government £140 million a year.
The reform will be implemented on 1 April 2012, but this will not apply to other non-EU countries.
A level playing field
Treasury minister David Gauke says: "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."
It's also important to be aware of the HM Revenue & Customs tax rules when shopping online over Christmas. Any item valued at more than £15 bought online from outside the EU will face a VAT charge. Items valued at more than £135 may also face customs duty.
This only applies to items bought online and gifts – sent from one private individual to another, without money changing hands – are exempt.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.