Tax & Accounting News

VAT loophole under scrutiny

26/08/2009

Online retailers who avoid paying millions of pounds in VAT by selling CDs and DVDs to UK customers via the Channel Islands are set to be investigated by the government.

A Treasury letter leaked to The Guardian stated that such firms’ use of Low Value Consignment Relief (LVCR), which applies to imported goods sold for less than £18, was ‘under review’.

The letter, from Treasury minister Stephen Timms, said that the government believed British companies marketing goods sourced in the UK to UK customers at VAT-free prices could be ‘abusing’ the rules.

It is now believed HM Revenue and Customs (HMRC) is looking to set up a test case to see whether the courts back its view that the loophole – which sees goods destined for the UK shipped to Jersey or Guernsey and back again – counts as an abuse of the tax structure.

Treasury estimates suggest VAT-free sales to the UK from the Channel Islands grew to £620million last year, potentially costing the Treasury £110million in lost revenue.