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RAVAS Comment on George Osborne’s Budget Announcement re LVCR

The group of retailers, campaigning against an industrial-scale offshore VAT avoidance scheme that has destroyed or damaged scores of viable job-creating businesses and cost the taxpayer many hundreds of millions of pounds, has cautiously welcomed the Government’s statement in the budget that it intends to act to to curb the abuse of Low Value Consignment Relief from The Channel Islands, but calls for urgent and meaningful action to follow words.

Chancellor George Osborne announced in the Budget that the government intends to work with the European Commission to explore ways to end the exploitation of Low Value Consignment Relief (LVCR) for a purpose contrary to its intentions. Retailers Against VAT Avoidance Schemes (RAVAS) is calling on the government to follow through on this promise as quickly as possible to prevent further damage to the UK retail sector.

The official loss of VAT through LVCR is £130m yet a recent reply to a Freedom of Information request from Channel 4 News resulted in HM Revenue and Customs stating that the figure for the year to the end of June 2010 is in fact £140m, rising to £155m for 2011. Insiders within the offshore fulfilment industry estimate the loss at closer to £200 million with the bulk of it due to the Channel Islands LVCR industry.

The market distortion that has resulted from the abuse of LVCR has seen the loss of most high street music retail brands including Fopp, Zavvi MVC and hundreds of independent retailers along with virtually all mainland internet retail. Over 90% of mail order music retail is now based offshore. Whilst some observers have claimed that the general fall in music sales and music downloads is responsible for the demise of UK retail, downloads remain peripheral to the albums market and in 2008 music retailers were closing at a rate three times faster than the fall in music sales.  Conversely offshore ‘hard format’ CD retailers avoiding VAT were growing at rates greater than 100% year on year.

RAVAS have pointed out that this kind of abusive market distortion is a threat to all mail order in the UK just not music.

The Chancellor also pledged to reduce the LVCR threshold to £15, though this will have no effect on the music industry as most CDs already sell for well below this.

RAVAS Spokesperson Richard Allen commented on the Governments action ““We have been telling HMRC about this for years already,” said Allen. “I hope that they come to a conclusion quickly about what they are going to do about it. Many UK retailers might not survive another year of this. Whilst  the LVCR threshold that allows goods to enter the UK VAT free will be reduced from £18 to £15, this really isn’t going to have much immediate relief for those retailers suffering the daily reality of a distorted internet retail market. However, they certainly won’t be opening bottles of Champagne in the offshore fulfilment industry either as it appears the days of this arrangement are numbered. We maintain a strong dialogue with the European Commission on this issue and we will be monitoring developments closely. There remains a significant amount of avoidance and market distortion caused by the UKs application of LVCR and its failure to prevent it being abused”

 

Retailers Against VAT Avoidance Schemes (RAVAS) is a UK pressure group of independent retailers that has fought to end the practice of large retailers avoiding VAT by routing their products through the Channel Islands. The large retailers have been able to do this because of Low Value Consignment Relief (LVCR), a relief created by Directive 1983/181/EEC that exempts from VAT any exports below a certain threshold value, which the UK government has set at £18 since it was introduced in 1983.  In the last decade the use of the relief has mushroomed to an industrial level with all major online brands, and most major high street brands having an arrangement to supply goods VAT free from The Channel Islands. The original purpose of LVCR was to expedite the processing though Customs of perishable goods and to save the administrative costs of collecting small amounts of VAT.

The Channel Islands are outside the EU. Hence since the turn of the century and the advent of Internet retail, large retailers of especially CDs and DVDs, but now increasingly other products such as memory cards and ink cartridges, gifts, car parts and other mail order goods intended for consumption in the UK have been routing goods through the Channel Islands. In 2005 HMV, one of the major players in the UK music industry opened a distribution centre on Guernsey, part of a stampede of major retailers to offshore facilities in an attempt to compete with HMV and the then market leader in offshore Channel Island mail order Play.com.  They have hence been able to undercut onshore UK music retailers by avoiding in a manner totally contrary to the intention of the LVCR Directive. Recently a senior customs official stated to RAVAS that “the relief and the special VAT position of the Channel Islands were never intended to be exploited in this way to supply goods VAT free to UK consumers”. Both high street chains such as Zavvi and Fopp and purely online players such as Delerium Mail Order, went out of business.

Richard Allen, long term campaigner on this issue and founder member of RAVAS stated that

“The argument is often used by those who profit from this arrangement that the scheme is good for the consumer because it allows them buy goods cheaper. I would question how a handful of powerful online retailers with a tax advantage offshore is preferable to a diverse competitive market place on the UK mainland, and point out that a truly fair VAT advantage would have to apply to both onshore and offshore retail and be available to all consumers. Why should consumers of goods routed offshore receive special treatment? VAT is levied to provide revenue for the government and should be levied equally on all non-necessity products. This scheme deprives the government of over £130m a year in VAT, a sum that it has to recover from other taxes. That’s before we start talking about lost corporation tax and PAYE from the companies that have gone out of business and the effect on the economy of distorting competition. The exploitation of LVCR in this manner contrary to its purpose is effectively an unjust redistribution from the rest of the economy to producers and consumers of goods routed offshore”

“At the end of the day even my 11-year-old daughter can see why a 20% price disadvantage is fatal. No amount of explanation or discussion will justify it. It’s just plain wrong.”

 

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18 Responses to RAVAS Comment on George Osborne’s Budget Announcement re LVCR

  1. Yawn…see you all in November it’s been fun, going to have Champs now…Not much of a change in anything. All that will happen now is DVD and CD companies will continue to lower there value of the discs so nothing will change. Strange how the UK is worried about a small island..the focus should be on Asia , China is the mother-ship if you think little Jersey is hard to silence good luck with China…

    Business isn’t just built on price…customer service is important….try getting anyone on the phone these days in the UK…impossible…ring China and they answer 24/7

  2. Glen, I agree that customer service is important but I find it difficult to convey the customer service that my company offers when we’re competing against forty other Amazon Marketplace sellers, with the CI lot beating the cr*p out of the UK lot by a clear 20% margin.

  3. Glen. We think you have missed the point. RAVAS has always said the UK application of this relief is contrary to EU law and still has a complaint active at the EU. Interesting to see UK now agree with that and are working with EU. We wonder who is telling who what to do… As for Asia and China, who cares ? As long as it’s not UK products being circular shipped to avoid VAT. If anyone wants to buy something from China mail order, go ahead. We have never had an issue with that.

  4. UK products, I think its you who doesn’t understand…The UK doesn’t make much of anything anymore. It’s to late the UK High Street is loaded with Chinese imports. Your comment ” As for Asia and China , who cares ?…. Look at what happened to the United States….China INC. lookout the mother-ship is coming.

    • Glen….. Yes products are made in China and India or wherever but they are LICENSED FOR EXCLUSIVE DISTRIBUTION AND SALE IN UK. That’s what comprises a UK product. Duh!

  5. Jason what market are you in ? What product is under attack by so many CI companies ?

  6. Sorry but we are starting to get comments that really have nothing to do with the purpose of this site which is to end the abuse of LVCR. They will be deleted if they are of no relevance to LVCR. Whilst we find your discussion about globalisation and customer service riveting its got nothing to do with this site or the abuse of an EU directive to gain a competitive advantage in the UK. By all means start your own internet traders globalisation forum. See our terms. Sorry!

  7. Glen – Printer Cartridges.

    We can compete on a lot of stuff but the original cartridges have a margin of literally a couple of percent so we just can’t swallow the 20% difference. I can’t tell you how annoying it is to have (previously loyal) customers phone up, ask you to pricematch a competitor based in the CI and you have to say no as you’d physically lose money making the sale. That customer doesn’t come back, why would they?

    Before the old chestnut of ‘you just don’t have the buying power, a 20% advantage has nothing to do with your problems’, I’d like to point out that we’re not a small player. We have three stores, one warehouse and a seven digit turnover but could do sooooo much better if we weren’t being handcuffed in this fashion.

    By the way, China doesn’t play in to this at all; not once have we been asked to pricematch a competitor based in China. The printer manufacturers lock their cartridges to specific regions so a Chinese cartridge wouldn’t work in a UK printer.

  8. You sound like a bunch of sore losers.

    Business is business.

    LVCR is legal and has a purpose that suits Government and tax payers.

    It is not companies avoiding VAT it is individuals making personal imports from outside the EU.

    Maybe you would be better campagning to stop people making imports.

    Grow up.

  9. We’d normally bin comments like the above but its so laughably inaccurate we thought we would include it. To quote the UK Government “Its is being used for a purpose it was not intended for” What they mean by that is companies are setting up structures to deliberately exploit LVCR and circular ship UK goods to an offshore location, so that their customers can import the items VAT free.

  10. Grow up? You have to be kidding me?

    Because I don’t want to move the business that I’ve built up over a period of a decade to the Channel Islands I’m told to ‘grow up’.

    I smell either a troll or a worried CI based retailer who is starting to realise that playing on an even playing field might not be easy. Worried that making money when you don’t have an immediate 20% advantage might be tricky are we?

  11. You’re not addressing the underlying cause though, are you?

    If UK VAT wasn’t so high there would be no incentive for companies to set up base outside the EU.

    It’s corporation tax that drives companies this way too, although thankfully, the Government are making progress on this.

    I’ve no idea how many personal imports are made into the UK, but the cost of policing the removal of LVCR would be huge.

    China etc have no concern for the EUs petty rules and routinely declare £300 items as samples.

  12. We can tell you. 80% plus of LVCR loss is due to The Channel Islands and that was given to us by a senior postal industry figure. Why ? Because unsurprisingly most UK people want UK products and no matter how much you bleat on about China they don’t sell UK consumer products from China.

    • I’m not bleating about anything.

      It was mentioned earlier – UK products are manufactured outside the EU.

      Some are inovative and I wouldn’t dismiss the possibility.

      80% from the British Channel Islands? I have no idea.

      What ever the Government does there will be those that seek the best opportunities for their business.

      I think it may be best to leave you in your own (un)happy world.

  13. LeafIe; now that this issue is being addressed, I’m of the opinion that my world, along with that of many other UK retailer, will be a lot happier soon 🙂

  14. LeafIe…yeah and yours more miserable

  15. Good luck with a fulfilment industry offshore with no tax advantage! Hope it isn’t foggy too often. What’s the strap line going to be to replace ” Come to Jersey and save 20%” ? How about “Come to Jersey. Its really inconvenient (and expensive) “

  16. Its about time these LVCR cheats were put on the level playing field. They have had a financial sales gain for many years where we have been directly affcted by mail order / internet sales as we cannot match or even beat their prices. They even beat distributor pricing to the trade, so how on earth are resellers going to even compete in the product market. LVCR beats the price of 100% of business based in the UK trying to have a level playing field. LVCR needs to be abolished for UK based companies to survive and compete fairly.

    CDs / DVDs / Ink cartridges / PC Memory / USB Cards / USB storage device & amp; the list goes on and on..

    Thanks. Keep up your good work.