Uncertain Future For LVCR

by Amanda Banks, Tax-News.com, London

18 October 2011

The UK's tax exemption offered to Channel Island exporters of low-value goods may be rescinded within months as the UK government looks to implement its Budget pledge to 'level the playing field' between Channel Island-based distributors and retailers in the UK.

Despite talks between the Channel Islands and the UK government, it seems possible that the relief in question - Low Value Consignment Relief (LVCR) - could be revoked as early as this year.

Under the terms of LVCR, exporters from outside the European Union can import low-value products to the UK market free from the imposition of Value-Added Tax, with less stringent customs procedures applied.

Goods of GBP18 in value can be imported free from UK VAT - currently 20%, although this allowance is due to fall to GBP15 from November 2011. The relief applies to products from all non-EU jurisdictions, including the USA and Asia, but is more frequently used by companies based in territories closer to the United Kingdom, such as the Channel Islands.

LVCR, granted 28 years ago, was introduced in the UK primarily to aid Channel Island flower growers, to provide them with 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.

The UK Chancellor George Osbourne said in August that if a 'workable solution' for the replacement of the regime wasn't found in talks with the European Commission, then it would be repealed.

At a recent private meeting, according to local press reports, Jersey's Economic Development Minister, Alan Maclean, has warned island businesses to prepare for the worst.

Recommended