Channel Island VAT loophole to be closed?

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The government are to crack down on companies using Channel Island shipping to avoid VAT, reports the Observer. Leaked letters from Treasury minister Stephen Timms state that UK companies using CI fulfillment companies to ship DVDs and CDs back to the mainland – thus avoiding VAT on items priced under £18 – may be “an abusive practice”.

The Treasury’s own estimates suggest that Channel Islands’ VAT-free sales to the UK cost £110 million a year in lost tax revenue; other industry observers have said that this is an underestimate. The minister may be seeking a test case to establish whether UK businesses shipping from Jersey and Guernsey are acting illegally. The leaked letters are said to state that customs officials have already challenged one business but that “unfortunately, no precedent was set … as the business in question accepted … they had accounted for VAT incorrectly.”

In the 2006 budget, the Chancellor said that if the loophole continued “to be exploited by businesses using offshore locations, the Government will consider changes to prevent this type of behaviour”. It seems that “round-tripping” – shipping orders from a UK distributor via the Channel Islands to a UK customer – will almost certainly be outlawed, though the situation may be more complex when an entire distribution network has been moved to Jersey. Mr Timms writes: “it is less clear whether, and in what circumstances, the principle of abuse can apply where a business chooses to locate distribution centres” in the Channel Islands.

11 Responses

  1. VAT will be the downfall of retail in this country. its not only Channel islands and DVDs
    As long as everything is made in China (and thats not going to change soon). Postage from Hong Kong is cheaper than UK to UK Special Delivery.
    Foreign eBay sellers have an unfair advantage of native UK eBay sellers. We have to pay VAT and they don’t. That means if they only need to operate on a 10 – 15% margin we cannot compete.
    They already have a cheaper labor force, property market, living cost etc. We can’t do anything about that its world economics. But this loophole that allows them to ship to the UK without paying the VAT is ridiculous.

    ebay and the Post Office both need to clamp down on this.
    1, Why for example is it cheaper to ship from HK to UK than Special delivery in the UK?

    2, Hong Kong sellers can mark something as gift or undervalue (as they offer to in there eBay advert) and we will not get a look in.

    The only advantage I can offer as a struggling Platinum Powerseller in the photography category is slightly faster shipping.
    Hong to UK is about 3 days. I can offer 2 days. But if someones in that much of a hurry they wouldn’t be shopping online.

    ALL goods sold in the UK need to be subject to VAT or
    NO goods sold in the UK need to be subject to VAT

    But we cannot have UK sellers pay VAT foreigner seller do not.

  2. Its worse than that Jason, if my experience is anything to go by !

    In 2007 I experimented with a new product, sourced from mainland China, the shipment was 4 large cartons – each carton was labelled as ‘Contents – samples, value US$1.00. I did not ask for or expect this to happen.

    As a result no VAT or Duty was paid on import, so I can only assume this is a common practice from China – the result is that non VAT registered sellers in the UK can get items from China and NOT pay VAT !

  3. I’ve had a similar experience as # 2. While I don’t like to pay import taxes (I think roughly 6% over here) I’d much rather do that than risk having my products locked up or destroyed. Unfortunately this happened on my second ever import. Items got stuck in a cage for 3 months and I lost thousands of dollars as I couldn’t sell and my niche dropped in price significantly by the time I finally got my shipment. I now make sure I explicitly tell them to put the real value on the package … otherwise they always come with unbelievable values marked on them.

  4. I buy things from states quite regularly, i guess about 1 in 4 comes with an import charge .

    perhaps they should just have a flat rate that everyone pays instead of what seems a fairly hit and miss method.

  5. I work in a callers office for Royal Mail. I’ve been doing this duty for four months and in that time I haven’t seen a single item from HK / China that hasn’t been marked as a gift and with a low value. I realise a lot of this stuff may well be cheap tat but some won’t be.
    Every now and then an item from China does arrive with a customs charge on it, despite being marked down. When people come to collect and pay for the stuff it’s been mentioned that some sellers will refund any charges if buyers provide proof they’ve been charged. I presume they realise so few items get picked up that it’s good for customer relations to refund VAT and clearance fee on the odd item that does get charged.
    I actually see more stuff from the Channel Islands with customs charges than from HK/China. It’s always fun explaining to people why they’ve been charged for those!
    Royal Mail only do as directed by HMRC on these items. I have a feeling there may be political reasons why more stuff from China isn’t physically checked as it’s blatantly obvious nearly everything is wrongly (and illegally) declared.

  6. Thats the problem Sue – if no VAT is applied on Import, there is nothing you can do about it. My real issue on this, is that if it happens on a regular basis, and it appears it does, a non VAT registered importer (ebay seller) is not paying the 15% – if they had to, then their goods would be 15% higher than that of a VAT registered seller, and they don’t have to also take into account VAT on the OUTPUT, so can sell cheaper (in theory) – great for buyers, but not good at all for VAT registered sellers on eBay who source products from China etc.

  7. Elvis on August 17th, 2009 1:19 pm

    Will these possible changes apply to busineses such as ?

    Fingers crossed.

  8. It depends how the implement any change.

    You have to remember that to change the LVCR threshold below £18 or euro 22 requires all EU memebr states to agree and this isnt going to happen. The UK can unilaterally drop it it to the mimiumum, but thats about 8-12.

  9. I am an ebayer from the channel Islands When I buy in products to sell it costs me a lot more on postage so the no VAT evens it out a little but I do agree big multi million pound companies should be stopped using the loophole.


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