No more cheap CDs. Channel Island VAT relief finally bites the dust
Don’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 Play.com, 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.