Damage to the UK Economy

The huge advantage gained by retailers located in The Channel Islands causes a distortion of competition. No longer do items carry an equal amount of VAT at any point in the supply chain, as should be the case according to the principles of EU VAT legislation. There is no VAT payable at the point of sale due to the exploitation of LVCR. Retailers who do not have to charge VAT now dominate mail order with 96% of Entertainment retail now based in The Channel Islands.

Whilst the consumer (with access to the internet!) may benefit from lower VAT free prices in the long term the number of retailers is reduced as monopolistic offshore companies develop, UK high street and mail order retail is degraded, mainland jobs are lost and the tax revenue that should have been paid to the UK Treasury ends up in the pockets of private company directors and shareholders. Hundreds of Millions of pounds a year in VAT that would have ordinarily been due on sales to customers in the UK is being lost as those same customers buy from offshore retailers products that have been exported to the Channel Islands in order to avoid VAT.

A common argument for keeping the relief as it stands is that the business generated in the Channel Islands supports the British Post Office and also saves the cost of collecting VAT on import.   Such an argument has a number of fairly serious flaws however in that it assumes that online trade would continue from The Channel Islands if VAT was charged on import, which is clearly not the case. The trade would move back onto the UK as it would be of no advantage at all to be based in The Channel Islands. In any case the UK has an obligation to stop the avoidance of VAT and the exploitation of LVCR.  From an environmental standpoint, many find it troubling that goods are being flown hundreds of miles to  the Channel Islands just to be flown back a few days later in a smaller parcel.

Of course, there are those that suggest we should continue to turn a blind eye to the exploitation  that is occurring.  The tabloids have for many years championed the concept of ‘Rip-Off Britain’, despite us having the lowest CD and DVD prices in Europe.  Many of them, along with their readership believe that the loss of business and jobs in their home country is a price worth paying to save a couple of quid off a CD. That viewpoint seems fairly shallow if you have just lost your job because an offshore retailer has just put your employer out of business.

5 Responses to Damage to the UK Economy

  1. I started a mail order business back in 1999. We sold computer accessories online and specialized in low cost data storage devices such as CDR, DVDR and flash memory.

    Competing with PLAY.COM, 7DAYSHOP.COM, and the other companies that shipped from the CI was hell. I grew my business by emphasizing areas where we excelled (fast delivery and superior customer service) and by expanding the product range to more expensive items. We were also driven to try to develop B2B markets where the VAT was being reclaimed., but that led to the necessity to offer credit and chase late payments! We lost huge volumes of business and huge potential growth because we weren’t completing for regular “end-user”” business on a level playing field.

    My business was still successful, but it could have been so much better. I employed 102 staff at our peak, but eventually sold the website in 2008 and the staff were made redundant.

    I’ve since moved to the USA.

    Good luck to all the entrepreneurs in the UK. They will need all the help that the government can give them, and certainly deserve a level playing field.

  2. What really galls me is the arbitary nature of the competition. I started my classic rock music website, the old http://www.cdxpress.co.uk in 2000. I already had 1000s of mail-order customers, predominantly using the telephone to order. I was a knowledgeable specialist and I saw 5 years of unfettered growth in internet sales. Until 2005 that is, when Channel Islands mail-order retailers placed their adverts directly alongside mine or in the same magazines. My information sytems were better than theirs so my listings often included more advanced info. I ultimately became an information service for sales through those companies sites. Customers would see a title I had, then buy it from one of their sites. In reality, I was advertising their shop. They didn’t really care about what type of music they sold, whereas despite providing a more informed and personal service, the unrealistic price diffential lost me the sale every time, until now my site is a mere shadow of it’s former self. Yes the CD market is now 30% smaller than it was in 2005, although much less in the classic rock specialist market but that doesn’t account for my 90% drop in internet sales. The day this abuse of LVCR is halted can’t come too soon!

  3. Marek, exactly the same thing happened to me . My business http://www.freakemporium.com was specialist collectable and obscure rock and pop and we were acknowledged as the leading internet retailer in that particular area. We were covered in The Guardian and regularly mentioned on BBC Radio 6. We’d been online since 1994. However we gradually found due to the fact we had to pay VAT to our friends at HMRC we couldn’t compete on price and despite some customer loyalty eventually everyone was using our site as a reference point and then buying the CDs from a VAT free retailer in Jersey. We had customers saying they wanted to support us but couldn’t due to fact we were more expensive. I even had the ridiculous situation of seeing my own manufactured CDs coming back in from the Channel Islands VAT free undercutting my price which was set at a level to support other UK mainland retailers selling my product. You couldn’t make it up! Because I had specialist staff who would not be available offshore, a lease and various other overheads I couldn’t move to Jersey or Guernsey (an expensive process involving greasing the right palms) My family and I like living in England. Why should I have to move to an Island on the other side of the Channel to keep my livlihood by getting involved in some dodgy ‘find the lady’ tax arrangement. Its a joke. Its not ‘globalisation’ either as some people like to portray it…

  4. government need to reduce the VAT to 10% in the UK SO IT WORKS BETTER AND GIVE SOME TAX CONCESSION/INCENTIVE TO UK RETAILERS.. I AM NOT AN EXPERT BUT SOMETHING NEEDS TO BE DONE OR WE WILL MOVE OUR BUSINESS THERE ALSO BEFORE WE ALSO ‘DEAD’

  5. Nice idea . Unfortunately it will never happen. UK could never afford it as VAT is a major income stream and it would be easier to leave the EU than reduce VAT to 10%. As for moving offshore, if you can afford to do that you must be doing well. Will cost you at least £20K -£30K a year just to keep it running. In any case this avoidance scheme is likely to be shut down now and once everyone is on a level playing field unfair competition won’t be an issue. Which is the whole point of this site. NB We won’t be approving comments about the fairness of VAT. That’s a different subject which deserves discussion but not here. Sorry.