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UK government to close loophole that allows VAT-free DVD retailing

The UK government is to amend tax rules that have allowed retailers to avoid paying VAT by sending goods from the Channel Islands. Low Value Consignment Relief (LVCR) will no longer apply to goods sent from the Channel Islands to the UK from 1 April.

House names selling CDs, DVDs and Blu-ray disc online, such as, Tesco and have established operations in the Channels Islands to take advantage of the tax loopholes.

Because the Channel Islands are treated as being outside the EU for VAT purposes, the government said use of the loopholes has increased in recent years and was now costing £140m a year to the UK Treasury.

LVCR was originally established as a VAT exemption for goods coming from outside the EU. The idea was to prevent EU members having to collect small amounts of VAT, when collecting it would cost more than it was worth.

The maximum price of the goods allowed under LVCR was cut from £18 to £15 on 1 November following an announcement in the Budget in March.

"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," said David Gauke, Exchequer Secretary to the Treasury in an interview on the BBC.

Large retailers have been shipping low-price goods to the Channel Islands and then having them sent back individually to customers in the UK.

Unsurprisingly, Channel Island legislators are worried about the likely loss of business. Jersey's Economic Development Minister, Senator Alan Maclean, is reported on the BBC to say more than 1,700 people were employed in the fulfilment industry across the Channel Islands.

Story filed 10.11.11

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