The Channel Islands of Jersey and Guernsey have said they will not appeal a High Court ruling in favour of the UK government’s decision that retailers sending low value goods from the islands must pay VAT.
The move means there will be no further challenge to the ending of the so-called VAT loophole that allowed retailers to dispatch goods costing £15 or less from the islands without paying the 20% tax. Many online and multichannel retailers based in the rest of the UK set up operations that benefitted from the exemption, and it is feared that hundreds of jobs could be lost as a result of the changes.
Today Jersey’s economic development minister Senator Alan Maclean said it had been advised any appeal would be likely to be referred to the European Court of Justice and that any decision would take between 18 months and two years. That, he said, was too long to benefit local businesses, some of whom have already said they will cut jobs.
“The primary reason for taking the matter to Judicial Review was to save jobs,” he said. “We must now concentrate all our efforts and resources on this, rather than pursuing the legal argument any further. We have worked closely with our counterparts in Guernsey throughout this process, and the Guernsey Policy Council has similarly concluded that an appeal should not be lodged.
“This is a difficult time for many in the island and tomorrow I will be meeting members of the fulfilment industry to discuss the outcome, explore ways we can support them and answer any questions they may have.”
Guernsey similarly decided that any appeal “would not assist the fulfilment and bulk mail industry in any way even if successful and if unsuccessful it would be detrimental from all perspectives.”
Deputy McNulty Bauer, commerce and employment minister, said: “The Policy Council will not be seeking an appeal to the decision made at judicial review. This difficult decision was made after an in depth evaluation of the judgement and on the basis of legal advice and evidence as presented. The Policy Council felt that seeking an appeal was not in the Islands or businesses long term interests.”
The effects of the decision are already being felt, with retailers reportedly cutting jobs. HMV is among them, understood to be planning the closure of its Jersey warehouse with the potential loss of 49 jobs.
In addition, Guernsey Post has said it will put up its postal prices, citing the loss of LVCR as “a significant contributory factor”. Its chief executive Boley Smillie said: “To put the price increase into perspective, the loss of LVCR will reduce our profit by £3.7m over the next twelve months. The tariff increases announced today will reduce that impact by less than £500k, with the remainder offset by efficiencies achieved within the business.”
Widely seen as a tax loophole, the LVCR scheme has attracted ire from UK retailers who were undercut by Channel Island-based companies. Richard Allen, who co-founded RAVAS (Retailers Against VAT Avoidance Schemes) said after the initial High Court decision that such a scheme should not exist. “Fulfillment is fulfilling people’s orders, offshore is just a tax arrangement,” said Allen.