Channel Island VAT Loophole To Close Within a Year

According to an article in the Daily Telegraph the EU has told the UK that the Channel Islands VAT Loophole is an abuse of EU law and that the UK is within its legal rights to act and abolish the “abusive and restrictive” trade specifically emanating from The Channel Islands.  It predicts action by the end of the year.

RAVAS has been party to legal advice since 2007 that made it clear that the UK could take action to stop LVCR being used for abusive practices which in this case involves fulfilment to UK customers from an offshore location purely to avoid VAT – an activity that makes no commercial sense other than for tax avoidance. LVCR is an import relief and was never intended as a method of avoiding the VAT that ordinarily would be due on sales made within the UK.

If the UK doesn’t have to refer the matter back to the EU and has been given the right to take action with the EU’s support, then we should see a rapid end to this trade.

We watch developments with interest.

Channel Island’s VAT Dodgers in Denial whilst UK and EU Prepare Measures to end LVCR Trade.

Despite George Osborne’s budget announcement that using LVCR to gain a VAT advantage in the UK is an abuse of European Tax legislation many Channel Island based LVCR abusing retailers and the infrastructure that supports them appear to be carrying on as if nothing has happened, apparantly assuming that the reduction in LVCR to £15 is the only measure that will be introduced by the UK Government. According to The Guardian online retailer and fulfilment company The Hut are even considering floating on the stock exchange.

All we can say at RAVAS to those currently enjoying the benefits of VAT free mail order  is that we have been informed by both the European Commission and the UK Government that changes will definitely be introduced to prevent this practice completely. You have been warned.

Channel Island Retailers fiddle whilst VAT burns.

A report in the Telegraph today revealed how Channel Island online retailers are cheating the UK government out of millions of pounds of tax by just falsely declaring the value of an item so that it falls below the £18 LVCR threshold and increasing the postage cost to cover the difference.  Because postage doesn’t attract VAT on import by hiding an items value in the postage CI retailers can avoid even more VAT. The article also shows how HMRC’s lax controls  are being abused – particularly in relation to postage and packing allowances – and the fact that HMRC relies on the Channel Islands Authorities to police this trade.

Spokeperson for RAVAS Richard Allen is quoted in the article

“No amount of excuses from HMRC justifies missing this kind of scam”

“Firstly, I don’t accept that UK customs should have any difficulty detecting this kind of abuse particularly when the arrangements that support bulk mail imports into the UK were set up by the UK authorities in the first place. Expecting vested interests in the Channel Islands to police it is like asking the wolves to care for the sheep.”

“Secondly it’s not hard to spot when a package declares a bogus postage on the label at such an unbelievable level that it’s the equivalent of it being marked ‘contains illegal drugs’.

“Thirdly, all these items are supposedly recorded by the authorities so there is no excuse for not also recording postage and packing. If you list everything on a spread sheet a quick formula will bring up anything with an unacceptable level of postage and packing at no extra cost to HMRC thereby increasing VAT revenue. Mis-declaring even once is an offence. How do HMRC intend to catch people out three times a year when they audit only annually? This arrangement should be audited weekly.”

Horticultural Industry has been Abusing LVCR for longer than Internet Music Retail.

RAVAS has been contacted by Derek Jarman, director of Hayloft Plants Ltd, a nursery that sells new and unusual plants in the vale of Evesham. Mr Jarman has revealed how the Horticultural industry has been exploiting LVCR to a huge degree since LVCR was first introduced in 1983.  Mr Jarman paid £400,000 in VAT over the course of last year and in an interview for an article in The Telegraph Online he revealed that companies 20 times his size are operating out of the Channel Islands  paying no VAT on goods under the value of £18.

He went on to say:

“As a businessman I congratulate these companies on being entrepreneurial. As a person who is conscious about the environment, I am seriously concerned about the amount of fossil fuel which is being used to take garden plants from mainland UK to the Channel Islands to be packed and then sent back immediately to mainland UK consumers…… The annual loss of VAT would fund many nurses, teachers and civil servants – the very hardworking people who are currently losing their jobs as the Government is short of money.”

The Telegraph article highlights how during peak season from March to June, it is not uncommon for 40ft articulated lorries carrying up to 42 trolleys of plants to board the twice daily ferries to Jersey and Guernsey. The goods are then unloaded in packing sheds, repackaged and sent back to UK consumers or kept in greenhouses until ready for sale.

Thompson & Morgan turned over £40 million last year from their premises in Guernsey whilst John Fothergill of Mr Fothergills, one of the handful of large horticultural companies with packing sheds operating out of neighbouring Jersey, admitted to The Telegraph that the company was based there purely for tax reasons.

“To be blunt we are here for the VAT benefit and we would have to rethink things if this changes.”

Who says Record Stores are Dead?

With Record Store Day on the 16th of April having been a huge success across the UK and with the number of independent record stores increasing for the first time in many years, it looks like the end of the VAT Loophole could not have come at a better time for music retail and mail order in general.

Here’s The View with the official Record Store Day 2011 Anthem ‘I Need That Record’