The stance from the UK Government for too long has been to point out that Low Value Consignment Relief is a part of EU law and claim that there is little that can be done. What appears to be lost on them is that the majority of UK companies are not complaining about the existence of LVCR rather the way that it is being abused and the fact they haven’t done anything to stop the abuse. Stopping what we believe is an abuse and the resulting tax avoidance and competitive distortion is something that the UK is obligated to do under EU law . By failing to stop the exploitation of LVCR the UK Government is in breach of the Principle VAT Directive (previously the Sixth VAT Directive) which states that the conditions for EU tax exemptions such as LVCR should be laid down “For the purposes of ensuring the correct and straightforward application of those exemptions” and to prevent any “possible evasions, avoidance or abuse”.
There are a number of actions that the UK Government could take :
1) The UK could immediately apply the lowest threshold applicable for the relief of low value consignments . Under the LVCR legislation this would be 10 Euros which equates to approximately £8.50 Such a move would be easy to bring in to force and would eliminate the vast majority of the exploiting trade immediately. It would also require no special permission from the EU and in fact, the majority of other EU countries have already opted to set their LVCR threshold at this lowest level. Additionally it should be noted that the UK has special postal import arrangements in the Channel Islands known as ‘Pre-paid VAT Schemes’ which could easily collect VAT on packages if the LVCR threshold was reduced to £8.50. VAT is pre-paid by Channel Islands retailers through these ‘voluntary arrangements’ at no cost to HMRC, and whilst they might argue that they could place their packages in the mail through normal channels forcing HMRC to collect any due VAT and handling charges from the UK customer, the reality is that they would lose their UK customers over night if they tried that stunt.
2) Under existing discretionary powers the UK could exclude mail order goods from the relief on a product by product and territory by territory basis as long as it was objectively justified and did not amount to discrimination. This requires no special permission from the EU and could be done immediately.
3) The UK could make a request to the EU to exclude certain goods from the relief no matter how they are sent into the UK and could also request to have this exclusion applied to goods originating from certain destinations such as The Channel Islands. This is called a derogation and would require EU permission. This was done by Denmark when they suffered similar exploitation via the Aland Islands.
4) The UK could take action in the European courts where it has evidence of the abuse of LVCR. The 2006 Halifax Judgement established that VAT abuse was defined as transactions that:
“notwithstanding formal application of the conditions laid down by the relevant provisions of the Sixth Directive and of national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions. Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage.”
In our view the circular shipment of UK goods via the Channel Islands and the splitting of single orders into multiple packages is a clear abuse of LVCR, the government is already in a position to use the Halifax judgement to enforce VAT on those companies who are benefiting from the round-tripping of EU manufactured goods.
It is totally unacceptable that the current use of LVCR via The Channel Islands continues and that the UK Government fails to do anything to stop it. The UK Government do not have the right to remain inactive
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