So just how have retailers responded to the news that they will no longer be able to avoid VAT on low value items sent out of the Channel Islands? Those based in the UK, with no offshore subsidiary, are glad to see the change, which means that from April 1 next year, retailers based in Jersey and Guernsey will now have to charge VAT on items valued at £15 or less. Previously they did not have to, under the low value consignment relief scheme (LVCR). The exemption scheme is widely seen as having given an advantage to online-only players delivering from the islands, and is also reported to have been used by high street retailers who sold via the operations of companies such as The Hut.
Exchequer secretary David Gauke said: "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. We are also protecting a significant amount of tax revenue."
Lorraine Parkin, Head of Indirect Tax at Grant Thornton said: "These changes are likely to have an adverse impact on many organisations that have fulfilment operations in the Channel Islands and the short time frame before their introduction means that decisions on the appropriate commercial response will need to be made quickly.
"Questions arise as to whether country-specific measures are discriminatory and it is expected that the draft legislation will be carefully scrutinised by businesses to fully understand the broader implications. Businesses fulfilling from other territories outside the EU appear not to be affected. Therefore, subject to commercial and supply chain constraints, it would not be a surprise to see businesses move."
The news has been welcomed by Richard Allen, spokesperson for Retailers Against VAT Avoidance Schemes (RAVAS), a group of UK-based retailers. He said: “It’s very simple really. EU law states that member states must ensure that LVCR is not used for tax avoidance. The UK has clearly failed to do that. The idea that LVCR was designed to provide companies with a means of selling goods, that were intended for consumption in the UK, VAT free in the UK is and always has been, a myth."
But The Hut, one of the major beneficiaries of the scheme, is reported to have said it will retain its Channel Islands base despite the change to the law.