Channel Islands tax avoidance loophole will close on April 1st

Accountants may be interested to learn that HMRC has now closed the loophole that let CD and DVD suppliers send VAT exempt goods to the UK from Jersey and Guernsey.

Last November, the Chancellor announced that Low Value Consignment Relief would no longer be applicable to goods sent to this country from the Channel Islands as from the first of April this year. As a precursor, the LVCR threshold was reduced by £3 to £15.

The relief had been in place for perishable goods for 30 years but for the past ten years large organisations have been exploiting it and moving their operations to the Channel Islands. This damaged smaller retailers who could not compete with the low prices charged by their larger competitors.

Phil McCabe, the senior policy adviser at the FPB, said he welcomed the decision to close the loophole. The government had to take this measure because the LVCR was anti-competitive and encouraged tax avoidance.

Products that cost less than £15 qualified as VAT-exempt providing they were bought and imported from countries outwith the EU. By breaking large orders into individual packages, companies were able to exploit this. Others sent their products on a round trip by despatching them to the Channel Islands and back again so they could benefit from the LVCR.

A Treasury spokesman said the government would monitor the situation to see if companies move their business operations from the Channel Islands to another non-EU jurisdiction and if that happens it will withdraw the LVCR from those countries as well.

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