Home » VAT » 6th of December 2011 could see Final LVCR Announcement as Jersey Minister Accepts Concept of Level Playing Field

6th of December 2011 could see Final LVCR Announcement as Jersey Minister Accepts Concept of Level Playing Field

Jersey Treasury Minister Phillip Ozouf has commented on the impending further changes to LVCR  which are expected to be announced in George Osborne’s pre budget statement on the 6th of December 2011.  Stating to the BBC politics show that the Island needs to “ be building businesses which benefit Jersey but are also not harmful to the UK”  he made comments starkly at odds with his previous whole hearted support for the expansion of the LVCR based fulfilment industry.  During his tenure as Minister for Economic Development between 2005 and 2008 he introduced a policy for this fulfilment industry “to allow online retailing as whole to expand in the Island” creating many new jobs for Island residents on the back of a “kink in the tax system“. Given that the removal of the kink was always inevitable reliance on it would appear to have been unsustainable.

Similarly the LVCR trade has also caused problems in the UK due to the failure of then Chancellor of The Exchequer Gordon Brown to prevent the industrial VAT avoidance that resulted.  Despite being made aware of the problem in the late 1990s by UK businesses who complained to the Treasury, the Labour Government continued to turn a blind eye allowing the Channel Islands to self regulate what was essentially a major abuse of an EU import relief. The growth of the abuse of LVCR has destroyed many UK businesses and cost UK jobs.

The change of heart by the Channel Islands and the expected decisive action of George Osborne is  welcome,  giving all traders the hope that a major distortion in the on-line marketplace will finally be removed, allowing retailers to trade on a level playing field and businesses to be built on firm foundations rather than ones based on tax avoidance.

All we ever wanted was a level playing field. 

NOTE : The statement in the Channel Island TV report below that LVCR was introduced to help the Flower Industry is factually incorrect.  The pre-paid VAT  collection scheme was introduced to help the flower industry in 1973 allowing Channel Island retailers to prepay VAT and avoid customs delays.  LVCR was introduced  in 1983 and applied to all imports into the UK, not just those from The Channel Islands. Over time the two have become confused.

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21 Responses to 6th of December 2011 could see Final LVCR Announcement as Jersey Minister Accepts Concept of Level Playing Field

  1. Fair if your in the UK – to anyone wanting to sell into the UK – it’s not fair. If you own a small business in the UK you do not have to charge VAT, whereas a business of a similar size selling into the UK will have VAT added to their items automatically. Then there is the extra shipping costs that retailers have to pay for shipping into Jersey, then the extra costs to ship back into the UK. Duty taxes on imports also raise the prices for non UK retailers. Sounds really ‘level’ I haven’t even started on the cost or commercial property in Jersey. I now can’t compete with shops in the UK. So i’ll have to close. One of many i should imagine.

    • I don’t think you understand how VAT works Geoff. If you own a small business in the UK, you still have to pay VAT on the goods that you buy. The difference is that when you sell them on, you do not charge VAT on top of this, but at the same time you cannot claim the VAT back on the products you buy. As a result, there is virtually no inherent tax benefit to not being VAT registered.

      Virtually everything else you talk about is actually a level playing field, as it brings the Channel Islands into the same system as everyone else in the UK. You mention “extra shipping costs” – well what about UK companies that are based in highly remote areas, especially in Scotland? You will find that most couriers charge extra to deliver to and from these places. Likewise, the cost of commericial property is extraordinarily high in places like London.

      There is always going to be a natural variation in costs and transport infrastructure within any country, and these are due to geographical and social factors outside the remit and control of Government.

      Your only valid point is “duty taxes on imports” – and that’s an arbitary choice imposed by Government. Don’t like it? Do like RAVAS is doing and fight to get it changed!

  2. Without dwelling on the fact that The Channel Islands decided to remain outside the EU, any serious business in the UK (one with a turnover of over £73,000) is legally required to register for VAT and has to charge VAT. At present virtually all UK business has to charge VAT in the UK marketplace whilst you don’t. However if LVCR was removed you are on a level playing field since the point you make is only valid if your turnover is below £73,000 but even then when you buy goods from the UK you don’t pay VAT. Goods bought by businesses in the UK are normally subject to additional VAT that can’t be claimed back unless you are VAT registered. As for the points regarding your geographical location, suggesting that it is ‘unfair’ that you live in the Channel Islands isn’t really an argument. If its a big issue just outsource your fulfilment in the UK. Surely that would make far more commercial sense than shipping stuff to The CI and back. The reality of the situation, as highlighted by your comments, is that without LVCR The Channel Islands are not really a convenient location for mail order.

  3. All of the items i buy in do not have VAT charged on them, nor do the business in the UK pay VAT on those items from the distributor so it was level in that sense anyway. However, we have to pay an extra 5% on import which other UK retailers don’t and generally have to pay extra for shipping. But you are right there will be more of an industry for UK fulfilment.

    • Don’t understand your point. Of course businesses in the UK pay VAT. If they are over the VAT threshold they have to charge VAT to their customers. If they are under the threshold they can’t claim back any input VAT back and so, again, they have to charge that on to their customers. There is no way other than illegal evasion for a UK trader not to charge VAT. You are taking goods from the UK purely for the purpose of stripping out the VAT element and shipping them straight back into the UK thereby distorting the market. How can you possibly defend that position?

  4. I really can’t understand the arguments of the CI lobby. I assume that they know the game’s up and are simply arguing that black is white because they don’t like the idea of the gravy train hitting the buffers after so long on easy street. For years VAT registered business has had to suffer this nonsense. When CI spokesmen such as the chap from Jersey Post the other day make statements bemoaning the loss of jobs and hardship for people when LVCR is removed my heart bleeds for them. How the hell do they think that businesses who pay their VAT dues have suffered for all of these years? Plenty of jobs lost there or never created in the first place I can tell you.

    The most annoying thing of all is that the consumer does not see this distortion and just thinks that the UK business is so much more expensive because of excess profits when in reality the LVCR merchants are no better than smugglers on an industrial scale. Get real boys and find another racket!

  5. I agree; I’ve completely lost count of the number of times we have been accused of ‘ripping’ off customers when we work to a margin of around 5% and then add VAT.

    The people we’re being compared with are of course CI retailers who, in actual fact (in most instances) are adding a greater margin than us but then benefiting from having to charge no VAT. They are the ones doing the ripping off but the government swings things a full 360 so that we look like the ones profiteering.

    Often I feel like a midget who is trying to fight a man with incredibly long arms and legs. I’m swinging punches and making the moves but it’s futile as he’s got his hands on my head in order to keep me at an arm’s length, while using his long legs to repeatedly kick me in the balls.

  6. I still have my reservations with this, the media are shouting loud as usual about the worst case scenario of complete closure of LVCR when in all probabilities the coalition will lack the gumption to hit LVCR where it hurts.

    Instead I see a long, drawn out process leading into 2014.

    If LVCR is closed in 2012 I will open a bottle of champagne and get trollied, because all the UK businessmen I spoke to about this last year said lobbying against LVCR was a waste of time. Certain Jersey based businessmen whom they know also said that LVCR will never be closed as the impact on the island would leave the UK government open to legal action.

    Well it certainly is looking like they were wrong, the EU has been decisive to the cause, lets see what the coalition can bring to table.

  7. Absolutely. They don’t shout about what gives them their main advantage. In fact they often don’t even mention it. Example from 7Dayshop.com:

    “How do we keep our prices so low? By sourcing from the cheapest suppliers and keeping our margins low. This does mean that we have to maintain low costs, so we don’t work out of fancy offices or spend our time drinking coffee in meetings. We work hard and fast and go home satisfied.”

    Er. Very good. Do you think it might also have something to do with a 20% VAT advantage which we have to pay and they don’t. Add the VAT they are NOT cheap at all so the boast is disingenuous.

  8. Its not a difficult problem to grasp is it ? If every brewery in Wales was VAT free then after a few years every brewery would be in Wales. Close this nonsense down now.

  9. IMPORTANT NOTE TO ANYONE TRYING TO POST ON HERE : We all enjoy free speech (although we’d like to remind you this is a campaign site to end LVCR abuse and not a public forum) but if anything in your posting could be construed as libellous it will be binned. If you resubmit it without the offending part, it may get on.

  10. Christopher Johnson

    My observation listening to the CI Media recently is that it’s impressive how so many Channel Island based companies make such sweeping generalisations as to the types of UK businesses that complain about LVCR abuse.

    ‘It’s just sour grapes’ they cry. ‘You clearly don’t know how to run your own business and are just blaming your shortcomings on something that has nothing to do with your own failings.’

    My problem is that I’m being undercut by 15% on a product that I make less than 5% on. I’ll personally write out a cheque for £1000 to anybody who can tell me how I can sell my product at the same price that they can without losing money.

    I’m certain that one of the incredibly business savvy CI retailers out there has a solution for me which I just haven’t thought of.

    Remember guys:
    – 5% margin with no room to maneuver on buy price.
    – I’m being undercut by approximate 15% across the board.
    – VAT is currently 20%. I have to charge it, CI guys don’t.

    I wait to hear the solution that my primitive UK business brain has clearly been missing all these years.

    • Well said Mr Johnson. Considering the fact that the fulfilment industry only exists in the Channel Islands because of LVCR then those ‘superior business brains’ have clearly not thought through the implications of the situation. Once LVCR goes there really is no advantage to being on an Island away from major transport infrastructure links in a place that is generally expensive and not very convenient. Does anyone really think that the recently turned Japanese Play.com or any of the other major retailers will hang around very long with no VAT advantage ? Given that the Horticultural circular shipping industry provides a great deal of income to various parts of the economy particularly the Ferry Service then what’s going to happen to that ? Just think of the economic fallout on:

      Jersey Post- postage
      Shipping Carriers- bringing the goods in
      Landlords- rent for warehousing
      Local office Suppliers- office equipment and Packaging
      Plumbers/ Electricians-keeping the warehouses going
      Local security firms – static Guards
      Jersey Treasury- tax
      Social Security- Contributions
      Social Security- Increase in benefits if staff are made redundant

      It appears that there are indeed some smart businessmen on the Islands, but they have sold up and moved on already. Fulfilment will soon go the same way as the Guernsey Marmalade Industry went when the Sugar Tax dodge ended in 1879

      http://www.amazon.co.uk/Secret-History-Guernsey-Marmalade-1857-1879/dp/0953254704

      Those who fail to learn from History etc.

      • Well as the Guy from the Jersey Chamber of Commerce said in the video clip “What’s plan B?” Maybe the Islands should start charging proper rates of tax if they want to have an economy that is self supporting rather than be reliant on bleeding other territories. Why should our business suffer market distortion just to prop up some tax utopia in The Channel Islands. Get real, that’s plan B.

  11. I find it rather amusing that the Jersey Government is now panicking as to whether Play.com will stay in Jersey now they have been bought by the Japanese. Of course they will not be staying!. Rakuten clearly have as an objective competition with Amazon who have fulfilment centres all over the EU. Why else would they be buying into EU online brands like Play.com ? Does anyone seriously believe its because of the possible LVCR advantage? A fulfilment base in Jersey is useless within an integrated European network and particularly if there is no tax advantage and LVCR is removed.The same kind of globalisation arguments that were thrown at UK traders complaining about LVCR now apply to Channel Island internet retail.

  12. This is all good and it will deal with one problem and provide level playing field. Most of these retailers were only shifting there to provide the same prices that some of the Channel Island companies were providing (play). This probably resulted in masses shifting as they were not able to compete on mainland. I am sure that the thought may have crossed the minds of many members here also. This change will take care of just this issue and present no additional benefit to being on CI.

    My main question here though is as follows: there are many VAT scams going on and CI maybe the most obvious as they were being quite open with using the VAT loophole. But what about the many sellers selling on ebay (not from the UK) who sell without any trouble for years till they get spotted and shutdown. By then these sellers have traded enough to earn what some of us would expect to earn after many years of painstaking working to build our business. For example; I can point to a couple of sellers on ebay, who have registered as Chinese/HK sellers, stating and dispatching from UK (Bristol) and after crossing the VAT threshold maybe a few years back are still trading WITHOUT PAYING ANY VAT. Yes they have been reported to VAT fraud line and yes I have written to HMRC a very long time ago and yet they sell in 100’s 1000’s every month. These guys are not just scamming UK out of VAT revenue but also countries like Germany all on backs of a big marketplace name like ebay, who should really be controlling this, forcing sellers to enter VAT details when they cross the threshold or alerting HMRC.

    Obviously these only require very small changes but again effect many even smaller sellers who just want to get on the business ladder after loosing their jobs or want to make a new start.

    After RAVAS achievements in LVCR front, would they help in steps to be taken to stop other abuse to VAT?

    Effective steps in all front will really encourage any individual and business to do honest business as a level playing field is present in all fronts.

    • Mark, very good points and issues that have been brought to our attention before. Firstly it was certainly Play.com that created the mass exodus offshore. Before their emergence this whole VAT avoidance arrangement was a well kept secret of the Horticultural industry that very few knew about. Play.com brought it into the mainstream and as a result of Play undercutting UK retail, UK companies were effectively forced offshore. The Channel Island retailers have tried to blame UK companies for using the loophole when it was the Channel Island companies initial exploitation of LVCR that forced UK companies to also take advantage in order to remain competitive.

      We are already aware of the ebay and Amazon VAT issues and it may well become out next campaign. Forcing ebay and Amazon to police VAT effectively would prevent this kind of abuse.

  13. are you bored of my very valid point that there will always be a benefit to running online from Jersey? 🙂

    Yet again today we have just had another enquiry about fulfilment from Jersey! seems bad press is very good press for us beans!! 🙂

    • Bully for you. Let’s see how attractive it is with no LVCR. Let us know how many enquiries you get early next year.

      • Clearly the enquiries we are getting seem to realise the extra tax benefits of running a business from Jersey, I am sure that everyone in the UK by now who runs an online business has heard about the LVCR issues and this webiste but there we have it, they are still knocking on our doors wanting to setup shop here! 🙂