Treasury Closes Loophole on Offshore VAT Exploiters

The offshore loophole that saw millions of pounds of goods – mostly CDs and DVDs - sent to the UK from the Channel Islands has been closed.

The final death knell was sounded when a legal challenge at the High Court by the Channel Island governments of Guernsey and Jersey - failed in their bid to have the Chancellor’s plans to abolish Low Value Consignment Relief (LVCR).

In November 2011, George Osborne announced that from 1 April 2012, LVCR would no longer apply to goods sent to the UK from the Channel Islands. As a preliminary measure he reduced the LVCR threshold from £18 to £15.

The 30-year-old administrative relief for perishable goods sent by post had – over the past decade – been exploited by large companies who moved their operations off-shore in order to exploit it, undercutting smaller UK-based retailers who were unable to compete on price.

Campaign group Forum of Private Business, which had campaigned for years to get the law changed welcomed the High Court decision. Phil McCabe, its senior policy advisor, said: ‘While we sympathise with the Channel Islands, we are delighted that this loophole is being closed. It was anti-competitive, tax abuse and avoidance and the government was obliged to bring it to an end.’

Under the scheme, a wide range of sub £15 products purchased and imported from outside the EU qualified as VAT-exempt under LVCR. Multiple goods orders were frequently broken down to individual packages in order to exploit it.

Companies essentially ‘circular-shipped’ their products from the UK to the Channel Islands and back again in order to qualify for the relief.

A Treasury spokeswoman said: ‘We welcome the judgement reached by the High Court today which confirms that the government is entitled to withdraw Low Value Consignment Relief from imports from the Channel Islands. We therefore intend to press ahead with this reform from 1 April 2012 in order to end the exploitation of this relief for a purpose and on a scale for which it was never intended.

‘We will monitor closely whether there is substantial diversion of businesses currently operating from the Channel Islands to other non-EU jurisdictions and will take further targeted action to withdraw LVCR from those jurisdictions if this becomes necessary.’