Channel Islands Keep Export Tax Break

by Robert Lee, Tax-News.com, London

28 March 2011

Channel Island exporters to the UK market have been spared the abolition of Low-Value Consignment Relief - which allows island businesses to sell low-value goods to the UK market VAT-free - amid failed attempts by UK businesses to lobby for its abolition.

Concerns were voiced in the Channel Islands, Guernsey and Jersey, prior to the UK Budget - released on March 23, 2011 - that exporters would lose the relief, with many smaller island-based business warning that the removal of the relief would make their businesses financially unviable when competing for UK business.

Under the current concession exporters in the Channel Islands can dispatch goods to the United Kingdom VAT-free, and with less stringent customs procedures applied, when the goods are of low-value.

Previously the relief was allowed for exports valued up to GBP18 - the maximum allowable, provided for under EU law. The 2011 Budget restricted this relief to goods worth up to GBP15.

LVCR, granted 28 years ago, was introduced in the UK to primarily aid Channel Island flower growers, to provide them easier access to the UK market. However, with the advent of the internet and the recent boom in CD and DVD sales online, companies such as play.com, Amazon and Tesco have established warehouses in the islands to dispatch their goods VAT-free to the UK market. The rule has come under heavy scrutiny, prompted, among other things, by the collapse of mainland-based retailers such as Woolworths and Zaavi, costing the UK jobs and tax revenues. The Forum of Private Businesses in the UK has estimated that the relief costs the UK GBP150m in lost VAT revenues alone.

While making the relief less attractive, the Budget will do little to stop the practice, with many goods currently exported to the UK market, including CDs and DVDs, falling within the GBP15 limit.

In a response to the Budget, the Forum of Private Businesses (FPB) criticized the government’s approach to the issue, stating that: “Simply lowering the threshold price of goods shipped via the Channel Islands on which no VAT is payable from GBP18 to GBP15 will not stop large companies exploiting Low Value Consignment Relief (LVCR).”

“The Forum agrees with the pressure group Retailers Against VAT Abuse (RAVAS) that the real test is whether businesses that do not have offshore facilities can now compete on an equal basis with their counterparts in the Channel Islands. The answer for smaller retailers – including those selling CDs and DVDs which will still have to charge VAT – is clearly no,” the Forum argued.

In his budget speech, Osborne did announce however that the government would “explore options with the European Commission to limit the scope of the relief so that it can no longer be exploited for [purposes] it was not intended for, and [the government] will revisit the level of the LVCR in Budget 2012 if discussions with the European Commission do not produce a workable solution to the problem of exploitation of the relief.”

While the future of the relief is at risk, many campaigns against the LVCR have failed to yield results in the past.

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