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back to article Government flies kite for VAT changes

The Coalition Government seems to be serious about changing VAT rules which currently allow big retailers to dispatch items via the Channel Islands in order to avoid paying the tax. The exemption was designed to protect Guernsey's flower growers but has been exploited by the likes of Tesco and Amazon who can undercut prices for …

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Big Brother

Always this newspeak

"The Treasury reckons it is losing about £130m in tax per year thanks to the loophole."

The Treasury reckons that it leaves about £130m in tax in the hand of consumers who are then free to decide what to do with it.

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Anonymous Coward

Re: Always this newspeak

Hmmm, you seem to have missed the point of tax.

(Set by the people we voted in, I should remind you. Unless you're a Sun reader, in which case you voted for "Lower taxes, higher public spending" and deserve everything you get for failing GCSE maths.)

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Flame

Re: Always this newspeak

I suppose that, if one clings to the delusion that more tax = A Good Thing For All, then you could be right. There's a substantial slab of the country which doesn't accept the default Guardianista position that everyone's money belongs to bien pensant socialists to distribute how they please.

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@AC 12:15

Yes, but that substantial slab of the country appears to have missed the entire point of taxation, doesn't it? In that taxation is used to pay for infrastructure for the common good. Given that the median gross annual income for full-time staff is £25900 (as per http://www.statistics.gov.uk/pdfdir/ashe1210.pdf), quite a lot of people can't afford to have everything on a privatised basis.

Of course, this all falls down a bit when tax-raised money gets spunked on paying hundreds of thousands of pounds to "retain" senior public sector staff who would otherwise be poached by the private sector (except the private sector has no interest in poaching them whatsoever because the professionalism and salary expectations of some of the staff in question are not in line with corporate expectations). Or when it gets spunked on over-priced and terminally-late government arms contracts. But on the other hand, we get the government we deserve, by and large...

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North of the border...

"....Set by the people we voted in, I should remind you"

Who's WE comrade. I never voted for them (neither did the rest of my country...)

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Unhappy

@North of the border

Neither did the majority of us south of the border either...

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WTF?

Silly Boy!

Wrong. You don't understand how Tesco/Amazon etc price. Say a product has a price of £10. With VAT a retailer puts it on his website for £12. Without VAT a CI operator can undercut and sell it for £11.50. hy should he charge less? That is enough to get the consumer to buy from CI rather than a mainland supplier.

So Tesco/Amazon pocket an extra 15% or so a sale. You may be lucky to get 5%.

So basically it is Tesco/Amazon who get the most of the benefit/money. Not you. And then you have to pay the extra tax to make up for the tax shortfall or further run down schools, hospitals ...

So you lose big time too!

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Alternative meaning

> The Treasury reckons it is losing about £130m in tax per year

The british public is benefiting by about £130m in reduced prices per year.

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another way of seeing it

tesco profit to the tune of £130m while pensioners go without replacement hips

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pensioners

and who is "Tesco"? it's the shareholders. Who are the shareholders? Mostly pension funds.

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Anonymous Coward

Re: pensioners

"and who is "Tesco"? it's the shareholders. Who are the shareholders? Mostly pension funds."

And so begins the race to the bottom in corporate/capitalist ethics as everyone points the finger at everyone else while a bunch of people somewhere are certainly getting richer and various other people just get screwed.

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FAIL

The wrong way of seeing it

You've missed the point of VAT, it's a tax which is passed directly to the consumer so it won't hurt or help Tesco profits if we are made to pay VAT on goods imported from the channel islands. We will just pay higher prices and Tesco will keep their existing profit margins.

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Big Brother

Taxed eh.

If the end price to the consumer increases, they will spend less - so its not £130m loss, nor will Tesco keep the same profits.

Anyway - we will expore other avenues that were abandoned by some when prices are reasonable. After all, there is no tax on BitTorrent.

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FUNDS

by which you mean a yuppy with red braces in a 911??

kinda makes my point for me

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Anonymous Coward

@AC 1248

It does assist Tesco (et al) if they avoid paying VAT for two reasons:

1) They don't have to discount the full VAT charge so they can make a bit more profit while still selling DVDs/CDs cheaper than other high street competitors.

2) They can drive any smaller companies, who don't have the ability to setup an operation in the channel islands, out of business. This means more business for Tesco et al.

Supermarket chains and Tesco in particular have serious form for moving into areas and forcing small shopkeepers out of business by loss leading and it's about time someone stopped it.

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FAIL

The small companies were there first

It was small companies such as Play.com operating out of the Channel Islands who drew attention to the tax situation in the first place. It's the small businesses which are taking advantage of this situation who will go out of business if the VAT exception is revoked, not Tesco. Tesco will always have the buying power to muscle the small businesses out of the market whether they are based in the islands or not.

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Anonymous Coward

Play.com

It may well have been play.com that started it, but AFAIK they are a channel islands based company supplying the UK. The big UK based dealers then stomped in and took over. This doesn't make what play.com were doing right, it just means that they caused less of a problem than Tesco, Amazon etc.

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Hmm

If they do, I just hope they retain the exemption for the small businesses

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Free Trade

Not quite sure if any politicians get this, but they keep banging on about free trade and yet complain all the time when people actually follow this maxim. DVD regioning is contrary to free trade as it prevents (theoretically) people from buying where they wish. If they really believe in free trade, you can't have exceptions or special taxes for imports of certain items etc.etc.

Customs (or Customs and Revenue as they should be called) will go mad over any removal of the £18 no-VAT rules. They could just do it from the Channel Islands, but that would be pointless as people would simply start importing from elsewhere. So, are they really suggesting Customs should inspect every single imported item, calculate the value and then charge VAT? Madness.

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Stop

Customs and Revenue / Revenue and Customs

HM Revenue and Customs won't "inspect every single imported item" any more than they inspect every purchase of a bar of chocolate from your corner shop. Nor do HMR&C "calculate the value and then charge VAT". VAT is administered by those who must charge it and by those who pay it but can reclaim it (as part of a legitimate business activity).

There is a registration and monitoring scheme for VAT, just as for PAYE. HMR&C investigate here and there to ensure compliance and imposes discouraging penalties where appropriate. If you try serious circumvention, you may be discovered and suffer criminal penalties.

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FAIL

@Mike Shepherd.....errr, no

Mike; the whole point here is that the senders are not in this country!! So, Customs and Revenue can't ask them to charge it and send it in. They can say no and unless Customs stop them in the delivery mechanism, they get through with no VAT. If the senders get caught, Customs can't touch them. That's why when you get an import that requires VAT (or some other tax) to be paid, you're sent a nice letter, you send the money, then they send the item. The seller doesn't pay if abroad!!

The system you're referring to is for UK companies only.

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FAIL

@Mad Mike.... not quite right

HMRC already have a voluntary system of pre-paid VAT for the retailers based there - that's why your Play.com purchases don't get held up in customs. All the government have to do is lower the LVCR threshold to £10 or remove it for everything except flowers/cream etc.

If the retailers don't like it and refuse to play ball, you let all their packages pile up at customs - they'd soon cough up to stop delays from driving their customers away.

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Anonymous Coward

About time too

...but will they also be blocking the tax loopholes for their friends in big business?

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WTF?

Eh?

What is so special about Guernsey flower growers? There are many thousands of small businesses and self employed tradesmen on the mainland who have to deal with the complexities of VAT.

Many of them are in low margin businesses, which hit the VAT turnover threshold before the owner is even making a living wage.

And if this law is intended to support small businesses in Guernsey, why no upper limit on turnover so that big businesses can't exploit it?

Sounds like an ill-conceived botch-up.

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The title is required, and must contain letters and/or digits.

"What is so special about Guernsey flower growers?"

They're in Guernsey, which is not in the UK, therefore VAT would have to be paid on import to the UK rather than being invoiced by the growers. It allows Guernsey flower growers to send their perishable produce to the UK on a daily basis in small consignments without customs clearance, which would otherwise make the transaction fail if there was any kind of bureauocratic delay.

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Flame

tax break for guernsey flowers

if guernsey's flower growers want to export stuff to us without paying the taxes that apply to imports and the hassles of customs inspections, they should become part of the uk. fuck 'em.

i'm fed up with the channel islands bleeding us dry as a home for tax dodging and then expecting us to look after them for free.

remember too that lots of accounting scams - northern rock's off-balance-sheet activities for instance - were done through offshore devices in tax havens like the channel islands.

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How exactly wise one?

Perhaps sir would care to back up his bleeding us dry comment with some reasoned examples or heaven forbid some statistics.

No? Thought not. You sir are a commentard of the highest order.

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No, no, NO!

Increasing the tax on big multi-nationals like Tesco will cause them to FLEE! Can you imagine the deserted wasteland the UK will be when Tesco et al leave due to the high taxes.

Why are you laughing?

This is the same reasoning they use for letting banks, telcos etc get away with only paying 1% tax (if that) so it must be true!

Without all those companies paying 1% (or less) and employing cleaners who pay 25%-or so, how will we afford schools?

Will no one think of the children?

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Anonymous Coward

Yeah, but...

Banks don't have to be located in the UK, they can just operate here, doing their trading elsewhere. However a supermarket kind of has to run pretty much everything in the country it sells stuff in, even if you work in both UK and USA you still need to run pretty much everything in both countries due to the physical nature of selling stuff.

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Yeah, yeah,

all the established banks will upsticks and leave if they're asked to pay tax. Are you George Osbourn?

http://gu.com/p/2nf8n

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Anonymous Coward

Err...

HSBC - Moved out of Hong Kong pretty damn sharpish when the Chinese were about to take over, that doesn't mean that they don't operate in Hong Kong. I'm not saying that it will happen, just that it can.

Supermarkets, however make their money directly from the main in the street, there is little location indipendant operation. Purchasing and IT could be carried out from a different country, so staff could be taxed there, but profits from a country are taxed in that country. Now compare with a bank, profits can be moved around, so that the investment operations can be run from a place where tax is lower tax, vast amounts of bank's money comes from investments.

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Flame

About time too

It is about time that LVCR was terminated; it no longer assists the cut flower trade, and only serves to rack up mileage on low value consumer goods sold in the UK.

The good denizens of the Channel Islands seem to want their cake and to eat it - lower Income Tax, no VAT on low value exports, and demands for zero VAT on imports.

Don't like it? Stop being a British dependency and join the French.

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Anonymous Coward

ok

Many of us would be quite happy to not be a British dependency, we don't really get anything out of it other than interference!

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Coat

Oh noes - Mr Taxman not able to wet his beak?

HMRC get more like the Mafia every day. And if the CI refuses he's going to make them an offer they can't refuse.

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Tax is a protection racket?

Really? Should we do away with it, and let society be run on the goodwill of others? That'll end well, I'm sure.

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IT Angle

Move to another country

I was going to suggest the big guys would probably just move to another Country with lower VAT.

Until I looked at European VAT rates, and even with the hike to 20%, the UK isn't doing that badly (although it would be nice to go back to 15%)

Cypriot Standard Rate 15%

Luxembourg Standard Rate 15%

Maltese Standard Rate 18%

Spanish Standard Rate 18%

Dutch Standard Rate 19%

German Standard Rate 19

French Standard Rate 19.6%

UK Standard Rate 20%

Austrian Standard Rate 20%

Bulgarian Standard Rate 20%

Czech Standard Rate 20%

Estonian Standard Rate 20%

Italian Standard Rate 20%

Slovakian Standard Rate 20%

Slovenian Standard Rate 20%

Belgian Standard Rate 21%

Irish Standard Rate 21%

Lithuanian Standard Rate 21%

Latvian Standard Rate 22%

Finnish Standard Rate 23%

Greek Standard Rate 23%

Polish Standard Rate 23%

Portuguese Standard Rate 23%

Romanian Standard Rate 24%

Danish Standard Rate 25%

Hungarian Standard Rate 25%

Swedish Standard Rate 25%

Norwegian Standard Rate 25%

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Proof that....

We are absolutely dying on our arses re maths education for the 'ordinary' people

our vat goes from 17.5 ( a tenth plus half that plus half _that_ ) to 20% (a tenth twice) because the average transaction time would increase to the end of time if a typical salesperson had to calculate 21%... nevermind 19.6% sacre bleu! (a tenth, twice, minus a bit... minus the lot for cash?)

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Megaphone

re: move

Wow, at this rate Europe will be up to 100% VAT within TWO YEARS!

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Thumb Up

About time

This has been abused for too long.

Also, the comment about keeping the exemption for small companies is a good point.

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Anonymous Coward

wow

Wow a whole 130 million! That will sure help people out.

Of course, the alternative is that 130 million pounds is spent on other things helping out the local corner shop instead of the sodding public sector. Almost 60% of our GDP goes to the government, and it's pretty clear that £££ doesn't equal performance.

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yup - £130mil goes a long way

But it would be better if they dealt with the thieving bastards who ensure they don't pay a hell of a lot more in tax.

Usual stuff - we pay more, banks etc. pay less.

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Who it will help out?

Onshore small businesses who can't compete, not due to economies of scale but due to large companies effectively getting tax breaks. Anything that breaks the Tescos / Amazon, etc. monoculture and encourages competition can't be that bad.

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WTF?

What's wrong with making shippers (and purchasers) pay

This tax evasion racket is common in the U.S.A. where several states are running large deficits.

In Canada, outfits in Ontario have to remit taxes (federal and provincial) if they have offices in Ontario as well as their home province. Canada's Customs (whatever fancy name they have been given) get to slap any applicable duty + federal tax + provincial tax.

Now that the Feds are collecting taxes on behalf of more provinces, their income has risen.

Shouldn't be a problem to apply in the UK - give the UK customs another chance to screw up. Eligible people should then be able to claim a refund. Better to collect first and refund second.

No doubt Amazon will try calling the government's bluff - as it does in the U.S.A. Cameron should stare them down.

BTW, how difficult is it to discriminate between flowers and CD/DVD's when writing a tax code?

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Stop

Not just CDs & DVDs

It's not just record shops that have dropped like flies in the face of unfair competition from the big boys who can avoid charging VAT - the Hut Group recently bought IWOOT, and Play have been shipping everything they can from the Channel Islands for under £18 for years.

That's all fine for the consumer saving a few bob on his online shopping, but the 20% advantage makes competition impossible for mainland retailers, and if you work for one and it's your job going down the pan, it doesn't seem such a sweet deal.

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Play.com

Being from Jersey originally myself, I didn't like seeing the island being used in this way because it is unfair. Having said that, from what I understand, Play.com genuinely began in Jersey so I kinda let them off the hook.

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Alert

Short sighted for media business

I suspect this will have a bad knock on effect on media sales in the UK.

Right now we're already paying high prices for media, which is driving scores of people into the hands of various torrent sites and download repositories. Now you're talking about taking away the mechanism by which UK citizens can legitimately purchase CD's and DVD's at lower prices, and whilst the VAT man loses £130 million, the media businesses gain from actual sales of media. Now, in the middle of rising prices and pay freezes in almost every market sector, you want to ramp up prices of media by 20%??? Are we trying to drive traffic into the hands of bittorrent sites? What the media business should do is fight against this with eveything they've got, because the losses to the media business could be double or triple the VAT losses.

I should mention, I don't like the media business, I just see where this is going!

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Pirate

It's the mark-up that's the problem

"Right now we're already paying high prices for media, which is driving scores of people into the hands of various torrent sites and download repositories."

Agreed. But it isn't the VAT that's doing this. Perhaps people would be less inclined to look for illegal alternatives if the media companies were a little less greedy? What's the mark-up on CDs, or on DRM crippled, low bit-rate MP3s?

"Now you're talking about taking away the mechanism by which UK citizens can legitimately purchase CD's and DVD's at lower prices, and whilst the VAT man loses £130 million, the media businesses gain from actual sales of media."

What the few UK audiophiles gain, the rest of us end up paying for as the government has to cover the shortfall through higher tax or reduced services. You also make it sound like a zero sum game which I doubt it is. Are the media companies really passing on the full VAT deduction or are they pocketing some of it? Effectively, we are all paying their tax for them.

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Really?

There are at least two 'record' shops in Bristol alone that sell cheap CDs and DVDs (typically CDs for about £3, DVDs for between £4 and £10). Granted, none of these tend to be new releases and you may be able to get them slightly cheaper on Amazon, but why not make Amazon play on level ground? Who you should be pointing the finger at are the large physical retailers who still try to charge £15 for a CD and £20 for a DVD. This is pure profit. No names mentioned, but one I can think of rhymes with bescos.

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Government by arsehole.

If it was a perk for small firms, why didn't they define the 'small' bit in the legislation?

Tossers.

And if you want a diverse highstreet, they are going to have to link commercial council tax to profitability. Banks and chains pay more. Slightly mad but rather lovely independent shops that make your town centre a nice place even if they don't make much money, pay a lot less. The alternative is loads of boarded-up shops and a selection of charity shops.

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Excellent Idea

Couldn't agree more - if people want interesting, quirky town centres rather than pound shop and charity shop nirvana, tilt the costs of being there in favour of independents.

Not sure it should be linked to profitability - charity shops don't make a profit, do they? Perhaps to the number of stores in the shop chain - that would help prevent clone towns and protect regional variation.

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