No more cheap CDs. Channel Island VAT relief finally bites the dust

9 November 2011

cdDon’t say we didn’t warn you. We told you this was going to happen months ago and now it has, or at least will happen next year. From April 2012 the increasingly popular Low Value Consignment Relief (LVCR) from VAT that enabled most of the Channel Islands to be covered with huge warehouses sending stuff back to the UK will be scrapped. This is likely to mean a huge economic hit in the Islands, and a slightly smaller whack on your pocket as you have to pay more for your books and CDs.

The basic premise is that low value goods sent from the Channel Islands to the UK could escape VAT, and therefore charge lower prices to consumers than mainland UK businesses. The ‘low value’ in question used to be £18, but was reduced to £15 on 1 November this year (yes, nine days ago). Yesterday, the Treasury announced that they were going to scrap it altogether with effect from 1 April 2012.

The scheme was originally intriudced to help Jersey flower sellers, but the breathtaking expansion of the CD/DVD/book market, led by giants such as, Amazon (via Indigo Starfish) and The Hut was never what was intended by the relief.Once again, big business has ruined it for everyone.

But there were two reasons the relief had to go. On top of the spiralling costs of the relief- which Exchequer describes as having “increased dramatically” in recent years and are now estimated at around £140m a year, there was a growing sense that it just wasn’t cricket.

Clearly, those big retailers who had the capital to relocate or set up a trading arm in the Channel Islands were able to charge prices of one sixth less than UK businesses, who were abiding by the rules and not taking the Michael. In addition, a number of circular transactions were taking place, where goods were imported into the UK, shipped out to the Channel Islands, and then resold to UK consumers under LVCR.

David Gauke, Exchequer Secretary to the Treasury,  when annoucing the end of the "exploitation of Channel Islands VAT rules" said:  "These reforms will ensure that UK companies, especially small and medium sized enterprises, can compete on a level playing field...We are also protecting a significant amount of tax revenue. By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses."

All in all, the loss of LVCR is no surprise, and perhaps we should all become optimists- rather than lamenting the loss of cheap DVDs in April, perhaps we should be celebrating the cheap prices we have enjoyed thus far.

Or you can bitch and moan. Whatever.

TOPICS:   Economy


  • Michael
    "Once again, big business has ruined it for everyone." Err... surely it's "price driven consumers" that have "ruined it for everyone"?
  • Paul Nikkel EDITOR
    Yeah not sure this is big businesses fault. It was consumers making this work from day one. In the end it probably doesn't matter as we're shifting to online purchase download/streaming for media anyway.
  • Avon B.
    No probs, I'll start downloading them for nothing instead.
  • cmike1000
    For the love of God, won't someone please think of the flower sellers.
  • Jeremy
    There is no VAT on books, never has been. So I don't think books are involved here...
  • Gary
    If you want cheap prices for official releases, just pirate away. It worked for China.
  • Tim
    That'll be the end of CDs then entirely. The reason I buy CDs is because they are cheaper than downloads thanks to this, on top of having a guarantee of no DRM ripping to lossless Flac. DVDs are next. Download speeds are on the up, quality like with music downloads is on the down of course, but most people don't care. Result is death of physical media, more DRM, and lower quality. That and increased piracy. It's the end of the world I tells ya!
  • Sam
    This seems like a rather pointless move from the government. I wonder whether the big companies will just shut down their Jersey warehouses and set up back in the uk for faster/cheaper shipping costs. Either way physical media is dying, This might be encouragement for some places to go digital only. But in the end this revenue stream will dry up for the government. And it is far easier to purchase digital content from 'abroad' and thus avoid paying VAT
  • bob Bit outdated but equally applicable >_>
  • Delenn
    Might help HMV survive a few more months, which for me is a good thing.
  • klingelton
    as Delenn says, i do hope this provides respite for the suffering uk highstreet, im sure a few jobs will be culled on the channel islands at the expense of thousands in the uk highstreet. For once, im in agreement with the uk government. Unfortunately, the way we consume entertainment (as already stated) is changing. the loss of HMV, Argos and other highstreet giants will not be as a result of VAT releif, but as an inability to quickly change and offer a trading model which compliments current consumer spending habits.
  • I'm a.
    "By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses.” But you report that they are scrapping it altogether - how is that the "best balance"? How much will it cost the taxpayer to collect VAT if the CD sellers continue to ship single CDs (presumably the VAT will be collected manually on importation and not at source) Or will there be some massive "handling charge"? How does this sit with European regulations on low value relief (and what happens if the goods are shipped via another Euro country (hop across to France and post from there)?
  • the_lunatic_is_in_my_head
    "How does this sit with European regulations on low value relief" The EU VAT directive specially states that any such relief must not cause distortion of competition to those subject to VAT. The government is making this change because they are legally bound to and should companies change location (i.e Switzerland) the government has stated they will continue to stop this abuse from any location. "hop across to France and post from there?" VAT in France is 19.6% and most other EU countries are on par, or higher, than our 20%. "Result is death of physical media" Physical media is far from dead, there is a wide range of material from small and large studios that sells very well on DVD and CD. There are also plenty of people who either don't use modern technology or completists who want a massive collection of DVDs or CDs. If physical media is at Death's door why do have so many special and limited edition releases at over inflated prices? The VAT doesn't make much difference on price to the end consumer but it does give small and high street business a fighting chance against the likes of Amazon and as much as consumers may like Amazon, their dominance over the media market is ultimately not a good thing for anyone concerned, except Amazon themselves.

What do you think?

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