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Government closes Channel Islands VAT loophole

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9th Nov 2011
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The government is closing the loophole that has allowed retailers to avoid paying tax on low value goods dispatched from the Channel Islands to the UK.

From 1 April, exported goods under the value of £15 will no longer qualify for the Low Value Consignment Relief (LVCR) in a bid to "take action to end exploitation of the rules", stated the Treasury.
The loophole, which the government stated costs £140m a year in tax relief, allows larger companies such as Tesco, Play.com and Boots to set up warehouse operations in the Channel Islands and sell cheaper, VAT-free products to UK customers. 
The government announced in March it would lower the threshold of low value imports from £18 to £15, which it did on 1 November, but Retailers Against VAT Avoidance Schemes and small business organisations continued to campaign for full closure of the loophole. 
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."
Commenting on the tax rule change, Jane Bennett from the Forum of Private Business said: "Virtually all the main players in the online industry mail CDs and other similar items like Blu-Ray discs from the Channel Islands to customers. 
"This totally unfair loophole has allowed them to totally dominate the market and put thousands of small, independent traders out of business.
"Today’s announcement will mean at long last a level playing field in the market, and the remaining independent record shops will be able to compete with the big boys on equal terms again. It’s excellent news for the high street."
Following the change, LVCR will still apply to countries outside the EU. 
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