Home » VAT » Guernsey Retailers Threaten Legal Challenge to UK’s ‘Discriminatory’ Removal of LVCR

Guernsey Retailers Threaten Legal Challenge to UK’s ‘Discriminatory’ Removal of LVCR

A group of retailers headed by a Health supplement mail order company is threatening to take the UK Government to Judicial review over the removal of LVCR from the Channel Islands. It is not understood exactly what the challenge would be but since the UK not only has the option to allow or disallow LVCR but also the discretion to apply LVCR in a manner that prevents tax avoidance and the abuse of the relief,    the argument would appear to rest on whether or not operating a mail order and fulfilment business from the Channel Islands, in order to use LVCR to retail VAT free  on the UK mainland, is an abuse .

RAVAS understands that the UK Government took action after clarifying the legal issues with the European Commission who are not only supportive of the UK’s removal of LVCR from Channel Island mail order goods but responded to a complaint from RAVAS that the UK had failed to take action to prevent an abuse of the import VAT relief.  The UK is obligated by both the LVCR Directive and the Principle VAT Directive to prevent LVCR being abused and used for tax evasion and avoidance particularly if it leads to a distortion of competition in the UK. One of the measures available under the LVCR directive to combat abuse  is to exclude mail order goods from the relief.

Channel Island retailers claim that they are being discriminated against because other countries can use LVCR, but the reality is that the same scale of abuse and it’s impact on UK competition is not apparent from other locations particularly in the horticultural sector. Horticultural goods are only circularly shipped via the Channel Islands as it would not be possible to circular ship plants over very long distances.

The UK government has stated that its removal of LVCR only applies to Channel Island imports because that’s where use of the tax relief system is excessive.  The rationale behind the UK’s initial application of  LVCR was that the quantity of low value goods imported into the UK was minimal, so the amount of sales tax generated by low value goods was nominal, and therefore not worth collecting once admin costs were taken into account.

However if a large number of businesses then capitalise on the relief  the volume of goods ceases to be minimal, therefore the total sales tax that could be collected also ceases to be nominal and therefore the logic for the application of the relief  no longer stands. Seen in combination with the obligation under EU law to prevent deliberate abuse, evasion and avoidance which leads to market distortion – and there needs to be mass abuse of the relief system for that to happen – then there is clearly a logical reason for the UK to only target those places where LVCR is used to excess.

The evidence of a distortion of competition as a result of the Channel Islands abuse of LVCR is overwhelming and the scale of the industry clearly justifies the UK’s actions.

Businesses in Guernsey have attempted to blame UK companies that have located to the  Island for causing the UK Government to take action,  ignoring the fact that it was  ‘genuine’ Guernsey business that first took advantage of circular shipping UK goods in order to trade VAT free on the UK mainland.  Deputy Carl McNulty Bauer claims that Guernsey did not encourage companies to take advantage of LVCR on the Channel Islands. This is a statement that many would dispute, particularly those major UK retailers now based there who were not only courted by the Guernsey Post Office and The Guernsey Government but had to take advantage of LVCR in order to compete with competitors already operating from the Island. Major UK based online operator Thehut.com has a fulfilment business on Guernsey serving various websites including UK supermarkets such as Tesco, while Sainsbury only recently moved to the Island.   Both the Guernsey Government and Post Office are responsible for encouraging the growth of the LVCR industry and it should be no surprise to the Guernsey Government that the UK has been forced to curb it.

In an interview with Channel Islands Television David Gauke the UK Exchequer secretary confirmed that the UK would take action against any abuse of LVCR from any location if it was to become apparent. He also confirmed that The Channel Islands were the major source of abuse of LVCR which is why they had to act.

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13 Responses to Guernsey Retailers Threaten Legal Challenge to UK’s ‘Discriminatory’ Removal of LVCR

  1. Yes I agree with them that it is unfair. The only way it would be totally fair is if it was made retrospective and every single penny of VAT avoided over the years had to be accounted for by the sellers. Never mind though, we are content with what we have. In my opinion, the only money to be made by a legal challenge is by the lawyers on either side. How on earth this is seen as discriminatory is beyond me. The situation BEFORE was discriminatory against VAT paying traders in their own country. From next April the playing field will be level. What’s not to like? David Gauke has made clear that if it pops up from other locations it will be dealt with. Good for him.

    • “Yes I agree with them that it is unfair. The only way it would be totally fair is if it was made retrospective and every single penny of VAT avoided over the years had to be accounted for by the sellers…”

      I think you should really push this, I think all your future customers will thank you… except that isn’t the import VAT payable by the recipient? Not sure the HMR&C will want to chase so many individuals, or that the individuals will thank you for that.

      I wonder what’ll happen if the non-EU sales keep getting sent; will HMR&C go cap-in-hand to the taxpayers for the funds required to collect tiny amounts of VAT from consumers importing low value goods? If only there were a system that could negate the need for this!?!

      • I don’t for one moment think it is going to be retrospective. I was simply using that principle to illustrate how nonsensical are the squeals of unfairness that we are hearing from the CIs. They didn’t care about the unfairness that they took advantage of for 15 years. OK so why should they, but equally it is a bit rich to be crying about unfairness now when all that has happened is that the iniquitous loophole has been closed. It would be rather more graceful to accept that it was good while it lasted but accept that here comes the real world that the rest of us trade in.

        As to your last point, if it simply carries on then the UK will instruct, yes instruct, the CI governments to stamp it out. The major operators, Tesco, Asda etc. will simply up sticks and get out back to their UK stores. They don’t give a stuff about the islands or VAT free prices and
        only went there in the first place because they were being undercut by the industrial scale smuggling operation.

        • PLEASE NOTE : We are not going to allow postings that cover issues already dealt with on this site in the Excuses section such as : everyone will go to Hong Kong/Switzerland etc. the VAT is too expensive to collect, downloads are the real problem, China is the real problem and so on. We have heard these so many times it really is getting boring. If you repeat anything from the Excuses section it will not pass moderation.

          • LOL I understand moderating a forum to avoid abusive language etc., but just to censor out views and comments that damage your arguments really manipulative and cowardly.

          • No its not. This is not a debating area. Its the campaign site of a group dedicated to ending what you incorrectly regard as legitimate. We are not going to allow an endless tedious stream of repeat comments that have already been dealt with elsewhere on the site. If you don’t like it go and start a pro-LVCR abuse website and argue your case there, as is your democratic right . We don’t see why we should provide a platform at our expense for your misguided views on this subject.

  2. Just on a point of fact,whilst bedding plants are circularly shipped via Guernsey, all of the plants shipped from Jersey are grown on the Island. As far as i’m aware Jersey and Guernsey are two separate legal jurisdictions and so abuse in one cannot be used to stop the relief in another.
    I fully support the removal of the relief for abusive transactions

    • We appreciate the support Tim but you are incorrect regarding Jersey. We know of a grower on Jersey who grows and circular ships bedding plants on behalf of third parties.

      Flying Brands, a PLC, grow some plants on the island but circular ship a lot more.

      We would be amazed if there are more than SIX bedding plants growers in total on the island of Jersey. The other four, are retail plant centres or HM Prison La Moye.

  3. Flying brands circular ship some products but not bedding plants

  4. There is around 15 acres of plug bedding plant glass in jersey and none in guernsey. The amount of glass in jersey is hardly surprising as the industry of growing seed raised bedding plants in plug trays orininated in jersey.

    • It depends on how you define ‘Bedding Plants’. If you mean seed raised annuals then we understand Flying Flowers have a production unit at Retreat Farm on Jersey. If you include vegetative material (fuchsias, geraniums, petunias etc) in your definition of bedding plants then we believe they produce some on the Island of Jersey but they also buy finished material from mainland UK suppliers, circular ship and send back to the mainland.

      We understand that another large circular shipper on Jersey is JR Horticulture who has recently invested in a large packing shed .

      15 acres equates to one medium nursery in mainland UK or one small nursery in Holland. It is nothing.

      The growing of seed raised bedding certainly did not originate in either Jersey nor Guernsey. Four Oaks Nursery in Cheshire was one of the first followed by Colegrave Ltd of Banbury and their satellite nursery at Bordon Hill in Stratford upon Avon,although the Dutch are very much leaders and innovators in the horticultural industry and it may have started there.

      In our view the only reason that Jersey is involved in bedding plants is to circular ship them!

      • So why do the channel islands expect to be able to ship flowers into the UK at an advantage over UK producers? Serious question. It just seems bizarre that if UK is clamping down on everything else from the CI undermining the UK VAT base, what is so special about flowers? I just wondered. Even if they are produced on the Islands, so what? If they made memory sticks there, would they claim a divine right to sell those throughout the UK without VAT simply because they weren’t round tripped?

  5. Legal challenge? Don’t make me laugh. These guys should probably be thankful that the UK Treasury dithered enough on this issue to allow them to build entire businesses from scratch with a 15-20% advantage.

    The party is over, please move on with some dignity. Since the majority of CI companies have always claimed they are only out there out of ‘circumstance’ rather than being there to take advantage of a tax loophole perhaps they should stay in the islands and show some loyalty rather than jumping ship so quickly.

    A good businessman doesn’t need a 20% advantage to run a company successfully. He can certainly struggle to make a business survive while working against a 20% disadvantage but he shouldn’t need a 20% advantage to make his business viable.