Low Value Consignment VAT Relief to disappear next year

Online accountants need to be aware that the coalition is getting rid of the Low Value Consignment Relief that applies to goods being despatched from the Channel Islands to the British mainland.

This special VAT relief is currently applied to products such as DVDs and CDs but ministers feel that this has created an uneven playing field. Large organisations have been able to set up large distribution centres in the Channel Islands, offering cut-price products, which has had a knock-on detrimental affect on smaller UK enterprises.

Initially the government reduced the LVCR threshold from £18 to £15, but as from the 1st of April next year, it will disappear entirely. HMRC estimates that LVCR currently costs the Treasury around £140 million every year.

Daniel Lyons, an indirect tax partner at business advisory organisation Deloitte, said the news came as no surprise. However, low value thresholds were introduced for a reason and removing them could have an adverse affect on legitimate business transactions. This move could have significant implications on the Channel Islands’ economy, he added.

He went on to say that large organisations would continue to look for alternative distribution models in order to mitigate their tax liabilities. The Channel Islands could find itself at a competitive disadvantage with retailers from outside the EU who sell similar goods. Lyons also suggested that the proposed change could actually be in breach of EU regulations.

Existing import reliefs for gifts from outwith the European Union will not be affected by the change.

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