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back to article Channel VAT loophole shrunk, not shut

George Osborne is cutting the value of goods which can be sold without VAT, but he is not ending the system which allows retailers with warehouses in the Channel Islands to ship goods VAT-free to the UK. The tax hole has seen the likes of Amazon, Tesco and Play.com shift warehouses to the islands in order to sell mail-order DVDs …

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Winner

So great news for consumers, them £17.99 Blu-Rays / DVD's will now become £14.99 ones.

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Jobs Halo

Brainwave

Give away a FREE DVD with every purchase of a bunch of flowers... Simple really.

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This is a small amount either way.

In Australia you do not pay VAT (GST) on items that arrive by international mail if the value of the package is less than $1000 (£620). Compared to that, the UK exemption looks to be small beer.

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Title

But is there a country near Australia that charges no VAT and has postage rates to Australia as low as sending an internal package?

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and?

All this enables you to do is buy your high value gadgets from the US for a lower price and forgo any warranty that you might get. Very few items have an international warranty these days.

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flowers

If the rule's there to protect flower sellers, make it only apply to flowers.

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Far to sensible.

This is government you are talking about. You don't crack a nut with a - erm - nutcracker, you must use a sledgehammer (VAT exempt, made from renewable trees, weighing 6.213kg, wearing a safety helmet tested in accordance with BS EN 24869-1-1992).

Eventually they will have 1000 pages of rules and regulations before they realise that not only do the rules allow yellow daffodils to be VAT exempt, it will also allow yellow bulldozers to be VAT exempt.

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Anonymous Coward

No, no, no!

The true triumph occurs when it is discovered that the new rules do allow yellow bulldozers to be VAT-exempt but sadly, due to an oversight, do not implement the original intention of allowing yellow daffodils to be VAT-exempt.

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Happy

flower power

> make it only apply to flowers

Then Amazon could send a daff along with every DVD.

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Anonymous Coward

title

Probably not a popular view but...

I actually think, in a way, the tax window is a good thing. The channel islands used to have a fairly strong tourism industry, but that appears to have gone down significantly over the past few years.

At least this tax window is keeping business in the channel islands. Sure, it needs to be moderated, but to completely remove it could prove devastating for the economy there.

Just my opinion.

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Coat

Eh?

OK, but we are now inside the EU and the Channel Islands are outside... from the rest of the world the limit into the EU before VAT is assessed is EUR22 (£18). Now from the special case of the Channel Isles it's reduced to £15

Does that mean that the Government is unfairly penalising "our dear Channel Islands" compared to the rest of the non-EU world?

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Loophole?

It's my understanding that this is all controlled by an EU rule, which gives each member country some flexibility on the exemption limit. So this is about all that can be done. All this talk about flowers is a red herring.

And it's got to be applied to everyone.

I wonder how the UK's setting of the limit compares to other EU countries.

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Sore point in Jersey...

"our dear Channel Islands" - isn't that a Churchill quote? I doesn't go down well in the Channel Islands, some of who think they were let down in WWII (presumably they'd have preferred being bombed like Malta).

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Anonymous Coward

bombed

We were bombed before the invasion as the UK decided not to let anyone know they had demilitarised us

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FAIL

On Sark, good breeding is the "in" thing

So you would have preferred it if Churchill had said "BTW, Adolf, the Channel Islands are totally undefended so you can go invade them willy-nilly and free up a few troops to aid in the continental effort"?

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Shocking political stupidity

The change points out that the chancellor is aware of a shocking tax loophole / blatent uncompetitive system in place. The near-irrelevant tweak highlights that he actually doesn't want to close it. He'd have been better to keep schtum rather than this half-arsed affair.

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Paris Hilton

As mentioned in a previous post..

I think the Chancellor wants to pay a bit less for his DVD's too.

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min

oh yeah...

that really tackles that particular exploitation. but at least the customer can now look forward to even cheaper dvds.

hooray for Osbourne.

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LPF
Unhappy

Sooo from what I can tell ... @min et all

The lefties such as Min want us to pay more VAT?

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That's not my interpretation

It sounds to me like all they want is more straightforward legislation. I guess the problem is that English courts tend to give exact literal meanings to legislation and will apply a purposive reading only in extreme cases. Though that's quite a good thing if you're trying to avoid politicising the judiciary, so it cuts both ways.

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Stop

High Street Music stores

"And we’re going to tackle the exploitation of low value consignment relief that has left our high street music stores fighting a losing battle with warehouses in the Channel Islands"

I use play.com partly because their prices are not bad, but mostly because I often find the high street music stores don't carry the CDs I am looking for. Recent things I looked for included Dubliners and Graham Coxon. I guess there isn't great demand for these artists on the high street at the moment, but they aren't too obscure either. Both were in stock on play.com when I was looking.

So, even if the loopholes were closed, the high street music stores will still be fighting a losing battle, as far as I am concerned.

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Anonymous Coward

I'm sure they will order them in for you.

If you really want to support your local retailer

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I think the biggest threat to all physical media over the next few years will be Digital downloads..

Illegal or otherwise. However I have mixed sympathies for them as I was systematically ripped off by them for overpriced music, videos and DVD's over the past 20+ years.

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Megaphone

Independent music stores vs. Offshore

Ok, so you'll wait 3 days for a CD to arrive from Jersey, but you aren't willing to walk into your local independent record store and ask them to order the CD for you - which will likely arrive in about 3 days.

Don't make weak excuses, you're looking to pay the cheapest price and in so doing, erduce the tax take for UK plc and shut down the town centres - and that's fine, but don't pretend you don't realise.

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Not just high street.

If you wanted to set up a UK based website specialising in Irish folk music you would not be able to compete either.

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Anonymous Coward

@Atherton20

And what if you don't have time to go back to the store to pick the item up?

The option is having it delivered to your home. More convenient for me and not having to waste time for a second trip to the store.

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Anonymous Coward

Re: High Street Music stores

What killed my high street music store is the local council's insistence on charging for parking for any period, no free 30 minute bays for me, and that they then made the high street "pedestrian friendly" with a 20mph limit and cobbles which make anything more than 5mph a car destroying experience.

Result, everyone avoids driving down the high street, uses the side roads, and causes traffic chaos.

That and I can't afford to put fuel in the car anymore!

So I just don't go there any more.

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insert title.

Which lical music store shall I support, Asda, HMV, or Tesco? The indies are long gone here in one of the uks biggest cities....

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Anonymous Coward

but..

I used to price things online then go to the local shop to buy it. You can't do that with places like HMV because it's cheaper on their web store than the real store. So if I'm going to have to order it on their website to get it at a reasonable price, I might as well order it from Play.com and get it at an even better price.

Plus, as pointed out, they don't always have what you want in stock at the local store.

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FAIL

It's a self-fulfilling prophecy... and it's bad news for consumers in the long run

The big retailers (Tesco, Sainsburys, Asda) only carry chart CDs so the likes of, erm, HMV can't afford to keep too much non-chart stock and certainly not the obscure stuff. The small independents can't compete with either and will, eventually, completely disappear.

Complaining about high street stores not stocking the obscure stuff, whilst using overseas services (I'm including the channel islands) to get what you can't buy on demand is pointless and stupid. If you want your local shop to stock something, go and ask for it. Better still, find your closest independent record shop and order the thing.

Its the same with books. I used to buy loads of second hand books, now I find it hard to find a second hand bookshop (that isn't a charity shop), those that are still around stick all the good stuff on the 'net (in the belief, rightly or wrongly, that they'll get a better price) but not on show in their shop - you just get the cack that didn't make the cut, and the occasional gem that's not been spotted.

Like most people I get probably 75% of my shop-sourced purchases from the likes of Sainsburys. However I make a point of using all the decent local shops on a regular basis, or pretty soon we'll only have the choice of Tesco, Sainsburys or Asda for 99% of all purchases where we interact with a person.

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Go

Business Opportunity Here

Buy yourself a big warehouse, get a collective of small high street stores to stock it and they to can join Tesco and Amazon flogging things on the cheap to UK consumers. It will still destroy there local high street business but at least they will still be in business

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Hmm

Why build a real warehouse? A virtual one made up of the totality of all their in-store stock-holdings would be enough.

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Why not just join the EU?

Britain could just announce that they're part of the UK for the purposes of being in the EU (like the French TOMs are) by use of the royal prerogative. Then they'd have to charge VAT at the UK rate anyway.

It's not as though the Channel Islands are democracies, so overriding the local government wouldn't be a problem. They could do the Isle of Man while they're at it - except that *is* a democracy (Tynwald, one of the oldest elected parliaments in the world).

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Anonymous Coward

wrong

Im not sure where you are getting your information from but the governments of the Channel Islands are democracies.

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Much bigger loophole.

The biggest VAT loophole is that registered businesses can reclaim VAT on goods for internal use, thus everything they buy for themselves is effectively zero rated. It's time this loophole was closed, and they were made to pay fairly for goods, same as everyone else.

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FAIL

I think

...that you've severely misunderstood how VALUE ADDED tax is designed to work.

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@ Anteaus

ok, businesses will pay the VAT on what they use as soon as you pay 25% more tax on your salary and don't forget Employers NI contributions when they deduct your employees NI so you can double your NI contributions.

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Tax exemptions

This is yet another example of how the panopoly of tax exemptions creates more harm than good. A simplified tax system will allow people to operate their businesses in a stable manner without worrying about protectionism being induced by special interest groups.

The High Street Music Stores only have themselves to blame. They have singularly failed to capitalise on their market advantage. Where Amazon et al can maintain massive inventories in warehouses, but the consumer still takes a risk on a purchase, the HSMSs could have pursued "try before you buy" models that would allow consumer certainty. However, by piling the latest chart trash into rack upon rack, they have neglected the opportunity of bricks-and-mortar to provide value-add to clients. They've taken on the distribution warehouses at their own game and have - by & large - lost.

If you look at successful retailers competing against the internet you see time and time again that customer service wins, especially if it is coupled with risk mitigation. Allowing a customer first hand experience of a product adds value to them, for which they will pay. Sure, for many customers, price remains the only consideration, but that is because they have not appraised or have devalued the risk element of an untried purchase.

While their businesses are under threat from internet retailers, you do see that camera and hifi shops are able to build sustainable businesses charging 20% more than the internet for the same thing.

At a lower price level, clothes retailers offer similar value to customers.

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His Master's Voice

Long before the Channel Island vendors (and beyond) started selling CDs at reasonable prices I'd abandoned the high street muggers like HMV: £17 for a CD was never reasonable.

Even though HMV were forced by competition (such as Amazon) to lower their prices I still won't set foot in one of their stores.

I pay £7.99 for most albums now and can't remember the last time I saw one online costing more than the new £15 limit so this change won't touch my CD buying at all.

DVD and especially Blu-Ray might get hit but it's not just price: I'd rather order online than travel the 10 miles to the nearest town with a record/DVD shop and mingle with the general population :P

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Not just the Channel Islands

LVCR applies for any package coming into the UK from outside the EU. Just so happens that it was exploited in the Channel Islands because they're geographically close and have convenient postal arrangements with the UK.

I sometimes buy small things such as T-shirts from places such as the USA - without LVCR I'd have to pay VAT on a $10 t-shirt, but more significant than the VAT is the £8-something admin fee that Royal Mail would charge for the pleasure of collecting the pound or two VAT. Basically LVCR is a way of saying "the VAT payable is so small as to not be worth the administrative effort, so let's not bother".

Getting rid of it altogether would only serve to raise money for Royal Mail and parcel carriers who can pass the increased admin costs onto consumers.

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Quite Tom

"The loophole was put in place to safeguard Guernsey's flower producers, and to stop Customs opening lots of boxes of daffodils."

No, it wasn't. It's a standard relief in all EU countries on items coming from outside the EU.

And by EU law the lowest the mlimit can be is around 10 euro.

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Wait....

"Getting rid of it [LVCR] altogether would only serve to raise money for Royal Mail and parcel carriers who can pass the increased admin costs onto consumers."

Nope, it would cost the parcel carriers business, as people would be less liable to order small packets from overseas.

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FAIL

Then explain how...

.... it can be dropped to a radically different level to every other EU country?

All other EU members the value is €22 (which was translated as £18 when it was €1.22/£1) - now it's €1.15/£1 it should be going *up* not down.

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Technically speaking...

...If somehow the Channel Islands exception could be removed, but general international mail below £18 was still VAT free, would there be anything to stop Amazon, etc setting up their own 'courier business' bringing packets of stuff which people had already paid for from a suitable distant tax haven, and then handing it on to Royal Mail for delivery?

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No, but

The reason it works with the Channel Islands is because they're nearby and postage is relatively cheap and quick.

The goods the likes of IndigoStarfish (Amazon's "Jersey partner") sell almost all get exported from the UK to Jersey then posted back again. Once you start sending things too far round the world and back the postage costs will outweigh any VAT savings.

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Flame

Why the loophole?

Why not just require businesses exporting from the Channel Islands to the UK to register for VAT purposes with Customs and Excise, and only allow such businesses to be registered that are relevant to the "native industries of the channel islands" - i.e. not the big warehouses exporting DVDs!

Of course I can think of a couple of other legal problems with that but they can change the law can't thet?

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Not just music

A lot of these comments are re the price of CDs and DVDs. You can get many other things, such as electronics - I got some SD cards from a Jersey firm.

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Alert

Take a look at Play.com's inventory

CDs, DVDs, memory cards, printer ink, stationery, gadgets, gifts, clothing, toys, pc components, media, blank discs, peripherals, iphone cases, mobile phone accessories, craft supplies, posters, film memorabilia, models, games - and that's just Play.com.

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Headmaster

It's called competition...

And if we left the EU, and closed down 80% of our British bureaucracy, we would be able to compete with the Channel Islands too.

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Home viewing

I bet Jacqui Smith's husband is relieved (that he can still buy her VAT-free daffs, that is).

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