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UK Deals Tax Blow To Channel Islands

by Amanda Banks,, London

01 May 2012

The UK government has announced that from April 1, 2012, Low Value Consignment Relief (LVCR) will no longer apply to goods sent to the UK from the Channel Islands.

The LVCR scheme allows goods imported to the UK from non-EU territories to be sold free from value-added tax (VAT) if they are priced at less than GBP18 (GBP15 from November 1). The scheme has encouraged many businesses to set up warehouses in the Channel Islands from which they ship items such as CDs and DVDs to the UK, and some argue that this has contributed to the demise of some traditional 'high street' retailers.

At Budget 2011, Chancellor George Osborne stated the government’s intention to take action to end the "exploitation" of LVCR, which in recent years has been used on an increasingly large scale to sell low value goods to UK customers VAT-free. At the same time, the government took the initial step of reducing the LVCR threshold to GBP15.

According to the government the relief costs the UK GBP140m each year in lost VAT revenues.

Legislation to enact the change is to be published in draft on December 6, 2011, for inclusion in the Finance Bill 2012. LVCR will continue to apply with the new GBP15 threshold to commercial supplies from other non-EU jurisdictions. The government has no current plans for further changes to the threshold.

In addition, the change to LVCR will not affect the existing import reliefs for gifts from outside the EU, including from the Channel Islands. This relief applies to non-commercial consignments, such as gifts sent to family members or friends.

Announcing the government's decision, David Gauke, Exchequer Secretary to the Treasury, said: ”These reforms will ensure that UK companies, especially small and medium sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands. We are also protecting a significant amount of tax revenue. By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses.”

TAGS: tax | business | value added tax (VAT) | commerce | offshore e-commerce | international financial centres (IFC) | Guernsey | Jersey | United Kingdom | offshore | e-commerce | tax breaks | retail

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