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back to article High Court asked to keep 'cheap DVD' VAT loophole open

The English High Court will tomorrow begin an investigation to determine whether online retailers should be allowed to avoid paying VAT on CDs, DVDs and Blu-ray Discs. The judicial review, demanded by the Governments of Jersey and Guernsey, follows Chancellor George Osborne's decision to close the Low Value Consignment Relief ( …

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jai
Silver badge

costs the Exchequer

that's like saying that online piracy costs the music and movie industry.

if they close this loophole, people aren't suddenly going to start buying the dvds at +VAT prices in the same volume that they do today. the Exchequer will get some extra income, sure, but it'll be a fraction of what they estimate. More people will just pirate or stream their movies instead.

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Anonymous Coward

Re: costs the Exchequer

"if they close this loophole, people aren't suddenly going to start buying the dvds at +VAT prices in the same volume that they do today."

Doubt it ... think most people ordering via Amazon etc are buying something they want to get - the fact that its coming from IndigoStarfish and saves £3 is probably not a major factor. In any case I'd expect that Amazon will be able to absorb some of the VAT related increase (no need to ship DVDs to Jersey then back to UK)

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Big Brother

Re: costs the Exchequer

More to the point, this means State will hoover up £110m a year (best case, as said), which won't be in the private economy anymore and will probably go towards financing the grooves on the left rubber tire of the Eurofighter as opposed to more DVDs or maybe bean conserves.

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@ Destroy All Monsters

"this means State will hoover up £110m a year (best case, as said), which won't be in the private economy anymore"

You know the curve which demonstrates marginal propensity to consume domestically, you know, the one which basically says poor people spend all their dosh, and rich people save it?

Well the UK Gov is one of those paupers, I'm afraid! At the moment it's all-hands-to-the-pump, spewing bond-debt-financed cash into the economy!

The ridiculously distorting Jersey loophole undermines legitimate businesses in the UK which might otherwise hire people - among other undesirable effects - so I don't think your knee-jerk half-dimensional libertarian analysis really cuts it. If you're going to do the whole "tax is bad for the economy" thing, do it properly.

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Anonymous Coward

fairness

We've not necessarily asking them to keep LVCR, just if the want to close it, close it for all. Closing it just for the Channel Islands does not solve the supposed problem at all, it just moves it.

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The big problem here...

... isn't the VAT - sucks to have it but we have.

The major suck-factor is Royal Mail's £8 "handling charge" on collecting it - I'd much prefer to remit the VAT on my imports direct to HMRC. So import a DVD that is declared as £16, and it's £3.20 VAT and £8 on top to pay the RM's fee.

Getting caught in errors where RM's "finest" assess the charges on the wrong sort of dollars is purely for entertainment purposes though. Lost count of the number of times over the last 10 years that I've been charged VAT based on US dollars when the declared value is in HK$... yes, you can appeal and get it back but it's all an unnecessary pain in the posterior (obviously it costs them money to process this appeal, probably wiping out the VAT collected).

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Anonymous Coward

Re: The big problem here...

"... isn't the VAT - sucks to have it but we have.

The major suck-factor is Royal Mail's £8 "handling charge" on collecting it - I'd much prefer to remit the VAT on my imports direct to HMRC."

I think that's why DHL announced a few weeks ago that they are introducing a much lower handling fee for collecting small amounts of VAT - £1.25 when amount to be collected is < £62.50.

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Anonymous Coward

Re: The big problem here...

fedex just used to send you a hmrc bill a few months after you ordered the stuff. Which is my prefered method.

But the current state of play is one of the main reasons I don't really import anything anymore, unless it's from Hong Kong and says it's a £1.50 gift...

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Re: The big problem here...

"I think that's why DHL announced a few weeks ago that they are introducing a much lower handling fee for collecting small amounts of VAT - £1.25 when amount to be collected is < £62.50.

I like the sound of that. The last DVD I got from Japan (no not animie pron) cost something like £25 including shipping, but DHL charged me a £35 "admin fee" to collect the VAT on it :(

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It's about time this loophole was closed, not surprised the channel island tax dodgers are moaning.

Play.com might be setting themselves to avoid this. Their invoices have recently started listing 'service charges' built into the price of the goods.

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£110m?

Peanuts - if they're that worried about lost tax, why not go after the likes of Vodafone for the missing £6bn?

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Corner shops not in the same market as big mail order

I type a film title into mail order firm's web site and get a page of matching films with descriptions and prices. My local shop does not have a web site, if it did, the film would probably not be in stock and if it was, the number of customers does not justify the cost of entering the description so I would not know if I was ordering the right film.

Physical DVD shops have either diversified away from DVD's or gone bankrupt. Being unable to compete on price is only a small part of their problem. They cannot compete on convenience or range of stock.

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Thumb Up

Re: Corner shops not in the same market as big mail order

Also i wouldnt be suprised if when you order a dvd /cd from a corner shop there ordering from indigo starfish and adding a mark up for the privelidge.

and agree with most comments here 110m is less than the mod pay on vets bills a year.

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am I missing something

Surely you just outlaw shipping goods in and out to avoid charging vat.

so goods produced in either Jersey or Guernsey are not affected.

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Pirate

The attitude of Jersey and Guernsey is disgraceful. They are hotbeds of tax evasion/avoidance and of money laundering yet enjoy the full protections of the British Government. London should order them to adopt 100% of UK laws and regulations or be cut off entirely - non-EU border controls, import taxes, trade tariffs and all. They'll soon come begging and agreeing to close those loopholes.

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Re cortezcortez

"The attitude of Jersey and Guernsey is disgraceful. They are hotbeds of tax evasion/avoidance and of money laundering"

I'm sorry but you clearly have no idea what you are talking about. Jersey, Guernsey and the other Offshore Crown Dependencies have THE highest standards of tax avoidance legislation and anti-money laundering. According to every study ever performed on the subject about 3/4 of such takes place within the US. The UK is also pretty high up on the list (and the UK is an offshore tax haven by any definition).

And how do you propose London orders an entirely different country to adopt their laws? Are you seriously proposing that the UK declares war on Jersey?

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Re: Re cortezcortez

"And how do you propose London orders an entirely different country to adopt their laws?"

They are not countries, as you say yourself (talk about inconsistency) they are Crown Dependencies. Learn the difference. If you had any idea whatsoever what you were talking about you would know that Westminster is permitted to IMPOSE ANY LAW on Crown Dependencies if it wishes.

Give them a choice: bring your rules in line with ours or we cut you off and you lose the benefits you currently enjoy (including defence, international representation, citizenship, border controls....).

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Ooh I forgot....

I suggest you also read the British Nationality Act 1981 and learn how else the Channel Islands benefit massively from being protected and supported by British taxpayers.

And you are wrong on tax evasion/money laundering. At best guess, the Channel Island is home to at least £500billions of UK taxpayers' money on which there are few checks, almost no monitoring, and on which the local authorities usually ask no questions. The islands have precisely zero financial crimes/fraud investigators and routinely obstruct HM Treasury and HMRC investigations. E.g. It is perfectly legal for UK residents to hold off-shore bank accounts in the Channel Islands as long as they declare any interest income earned to the Inland Revenue. Many refuse to do this, and the Channel Islands protect their anonymity and refuse to disclose the data to UK tax investigators (even Switzerland and Luxembourg comply much of the time).

You talk like you know about the subject, but clearly you don't.

PS Saying "the US" is worse doesn't change a jot about the fact there is a problem there from which they benefit massively - and then whine when UK Plc tries to close a loophole which shafts many UK retailers and independent businesses.

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Re: Re cortezcortez

Sorry, but you can't simply make up constitutional law like that. They are nothing to do with the UK and Westminster has absolutely NO powers over them. The only connection is as the nam implies through the crown, not Westminster.

It's always a good idea to ensure you yourself have a basic grasp of the facts before accusing others of ignorance and pontificating.

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Re: Re cortezcortez

I do know what I'm talking about. I've provided evidence. You have provided none. Here is more:

Westminster is responsible for defence, immigration, nationality and representations at international fora (the latter by consent; the others are binding by existing agreements). The British Nationality Act 1981 covers the Channel Islands. Many UK laws cover the Channel Islands and under current constitutional law Westminster may impose ANY law on them (though this is exceptional - I think the last time this happened was in the 60s). On the latter, Jersey claims this right is now defunct though a ruling in the House of Lords on behalf of the Department of Constitutional Affairs has said it remains in force. Jersey also passed a law to try and stop Westminster's rights, but this is not constitutionally recognised by the UK. London can also apply UK laws to the Channel Island by "Orders in Council".

You claim all you want that I know nothing. I'll just keep posting facts you'll choose to ignore.

The Crown Dependencies benefit MASSIVELY from their connections with and protections from UK taxpayers. Why do you think they have no intention of breaking the links? London holds the power over them; they should use it.

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Mushroom

cortezcortez - a loophole isn't a violation of the law

A loophole is something that the law PERMITS. The retailers doing this are able to do so precisely because the laws and regulations of the UK allow them to. That's why they are doing it - DUH!

You seem to be suggesting that the Jersey and Guernsey governments should be threatened with sanctions for applying the law !?! i.e. that they should BREAK the current law "or else". Not quite what you had in mind I think.

Here's an idea... if you are a retailer competing with Amazon and Play et al and don't like the fact that they found a way to compete with you, why not do what they are doing ? If you can't play the game on those terms, and you can't sustain a business on your own terms, then pack up and do something else instead.

That's something called "market forces". Whining to the government and asking them to level your playing field for you, that's called "protectionism".

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FAIL

Re: cortezcortez - a loophole isn't a violation of the law

"A loophole is something that the law PERMITS."

*FACEPALMS*

No it is not. A loophole is a loophole. If the law permits something there wouldn't be a loophole for it. That's why it is called a loophole. Duh.

What you mean to say is that loopholes are not illegal. If you knew what you were talking about you would know the difference. It is for this reason the UK government is currently working on something called a "general anti-avoidance rule".

"You seem to be suggesting that the Jersey and Guernsey governments should be threatened with sanctions for applying the law !?!"

Stop talking utter tripe. They are not applying the law, they are finding a way AROUND the law and taking advantage of it in a way that was not intended (which again, is why it is called a loophole).

You really need to do some reading.

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IT Angle

Most of the commentators here quite clearly don't have a clear understanding of the facts..

surrounding LVCR.

It was originally introduced EU-wide for goods coming into the EU from ANYWHERE outside the EU - not just the Channel Islands - because the cost of collecting the VAT on goods of low value was greater than the tax collected. That fact won't be changing just by reducing the value to zero - it will still be costing them more to process than they'll be collecting in tax.

The second thing is that they are just using the Channel Islands as easy target scapegoats unless they scrap LVCR across the board - for goods coming in from ANYWHERE (that's actually what the court case is about). Otherwise all that will happen, is that the DVD shippers (as opposed to the legitimate local retailers who are left carrying the can) will move to somewhere else outside the EU - like Switzerland for example.

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Wrong one to start off with.

Of course in these times of government debt, it is good tax loopholes get closed. My problem with this is the Chancellor is straight away not going for one that Vodafone or any of the big avoiders use, but one 'joe public' are using to get cheaper DVD's, etc. That about says it all.

Should it be closed? Probably. Should it be closed before anything is done about the billions of pounds being lost to the big avoiders elsewhere? I would say no.

Also the idea these big companies shipping from the channel islands are avoiding tax is a fallacy. It is the consumer avoiding the tax. The corporation does not care either way whether their consumers are paying tax or not. The only advantage it gives them is being a bit cheaper than high street stores. They themselves are not avoid tax, we the consumer are.

And of course our mug of a Chancellor, goes straight away before any other loop hole to one that directly encourages consumers to spend. It's good that our economy is doing so well that it can afford to have consumers dis-incentivized to spend as much.

How about closing the loopholes that the likes of Vodafone, etc use first, before this one. Then I will start to believe the 'we are in it together' language. Otherwise it smells of 'we are in to together' for the people least able to contribute more, but if you are a large avoider like Vodafone etc, then continue as you are.....

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Will actually lose money

I'm originally from the channel islands and have many friends who work in industries based on LVCR.

Yes it is a loophole but the main problem is that they are ONLY applying this restriction to the channel islands - almost borderline racism and also quite stupid -> the companies will just move their operations to other countries e.g. Hong Kong or Switzerland and continue to exploit the loophole but now from places that DON'T put buy from UK suppliers - don't forget 95% of the islands' internally consumed imports come from the UK - i imagine it is the other way round with Hong Kong!

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This partially the cause of Game and other high street retailers problems because they haven't been able to take advantage of the same loopholes.

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Bronze badge

It probably didn't help Woollies either. Remember Woolies went down because their music wholesale subsidiary went down and they hadn't protected the rest of the business from the ailments of their subsidiary. And Music International went west because retailers were unable to pay their bills because the retailers were in trouble. And the retailers were in trouble because they were being undercut by the likes of Amazon. And of course a major contributory factor was the fact that even if all other things had been equal the retailers would have had to charge 20% more than the likes of Amazon and Play.

Obviously back when VAT was 8% it wouldn't have been such a big issue.

How about a compromise? Companies who were based in the islands before LVCR was introduced and used this loophole in it's first year of operation can continue to use it, but companies who have set local operations since then can't.

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Anonymous Coward

all these shops are dying mainly becouse most people don't want to go to a shop, shopping is a pain in the arse, who wants to have to go to the shops on a saturday, deal with the other people who've had to go to shops, deal with annoying staff in the shops to get something then go back home.

I much prefere to go onto a website, find what I want, click a button and have it arrive within a day or two. I prefer it all the more if I don't even have to wait for it to be delivered coz it's steam.

Also these big companies that work out of ware houses will always be cheaper than highstreet shops as they don't have to pay for expensive retail space and customer facing staff.

It's similar to why a super market is better than the highstreet becouse you go to one big shop that has economies of scale and get everything you need in one go. Also stuff in supermarkets is damn cheap in comparison to a high street store, and I can order that from home to and have it delivered.

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Bronze badge

You're missing the point by a country mile. We're not just talking shops, but websites operating in the UK and sourcing their goods in the UK are having to charge VAT. Companies like Amazon do not. Amazon and the rest are not based in the islands, but have set up subsidiaries in the channel islands to exploit the loophole. It's a classic case of somebody operating to the letter of the law rather than in the spirit of the law. Perhaps this indicates that the legislation was poorly drafted.

As such the best solution would be continue to allow the loophole to companies wholly based in the islands. As such multinationals such as Amazon would not qualify, but small local companies would. What Amazon and the rest are doing is tax avoidance (that is to say it's legal, but not necessarily fair) and the governments of the islands are encouraging it.

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This post has been deleted by its author

FAIL

very short sighted

I live on Jersey and have done all my life. Point of fact... We are not "tax dodgers" we DO pay tax.

Also do those in the rest of the UK realise you WILL be paying more for DVD's and CD's when ordering from Amazon, Play and alike who use the "loophole" currently if it is closed?? You will be ones worse off.

If they do close the loophole I would like to see all the “English migrant workers” sent packing on the first boat out of Jersey (there are more than a few hundred of them over here) and that would free up work for the locally born people who are looking for work.

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Bronze badge

"They say closing the loophole is discriminatory"

Well as far as I recall discrimination is treating somebody (or something) differently from others based on an arbitrary distinction. As such LVCR is of itself discriminatory. I'd love to see how treating all companies in the same way regardless of their operating base could be described as discriminatory without fundamentally redefining the word discriminatory.

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Stop

The UK has a right to set any tax rules it wants

Incidentally, some posters miss a rather salient point: the UK has the right to make any tax rules it likes so long as it is in accordance with UK and European law. If it wants to change the LVCR rules or choose to whom and how it applies them then it is perfectly entitled to do so.

Utterly ridiculous to claim that is is discriminatory to the Channel Islands, unfair or illegal. But alas we live in an age of sanctimonious complaining - usually from people with vested interests.

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