UK Government Plays Dumb Over VAT Increase and its Effect on LVCR Exploitation

With VAT due to go to 20% in a few weeks time and offshore retail about to benefit at further expense to UK mainland retail, Adrian Sanders the Liberal Democrat MP for Torbay asked David Gauke the Exchequer Secretary  the obvious question on the 13th of December 

Mr Sanders:
(1) what estimate he has made of the number of UK businesses based on the UK mainland that ship goods to UK mainland customers via the Channel Islands

(2) if he will make an estimate of the likely effect of the rise in the rate of value added tax in January 2011 on the number of UK-based mail order businesses transferring operations to the Channel Islands.

The answer he got from Mr Gauke was pathetic :

“No such estimates have been made

Since Mr  Gauke appears unable to answer the question we will do so for him :

1) We know that 96% of UK internet Music Retail is to be found on Jersey and Guernsey and that virtually all of that also has a UK mainland presence. Most major UK mainland high street retailers are also on the Islands selling VAT free.

2) Since The Channel Islands are not financially transparent jurisdictions we cannot know for sure what the figures are for UK companies moving offshore but we know from speaking to consultants  and trust companies that many UK companies are looking to transfer to the Islands if at all possible.  The reality s that if a company faces offshore competition then they have a simple choice

a) stay on the mainland and go out of business as a result of the competitions 20% advantage or

b) move offshore and compete on a level VAT free playing field.

UK companies really have no choice but to move offshore if the UK Authorities continue to allow LVCR to be abused.


    1. Having just presented a lecture to 60 music students at the University of Newcastle upon Tyne, where I highlighted the distortive effects of the Channel Islands Mail-Order Mafia (CIMOM) on the independent music retail sector , I am not surprised civil servants play dumb. None of the students were aware of the problem, most bought music by mail-order and none could even tell me what the letters VAT stood for.
      Until the public begins to understand the connection between the tax system and public spending civil servants can always hide behind a veneer of legitimate ignorance and authority.

  1. Its quite incredible. I have a detailed five year paper trail with politicians (Labour and Conservative) and civil servants on this. They are digging a deeper and deeper hole for themselves . If there was ever an example of The Emperors New Clothes, this is it. VAT advantage ? What VAT advantage ? Market distortion ? What market distortion ? It is truly ridiculous.

  2. Good on Adrian Sanders but what a totally useless reply. Why bother responding with that! Richard how long have you been talking with the new Government ?

  3. They’ve known about this a long time before they came into power. My MP Cheryl Gillan (on the Cabinet) has passed vast amounts of information to George Osborne, I met the Shadow Paymaster General Mark Francois, and Jeremy Hunt (Culture Secretary), indeed many MPs have been contacted over the years. I have also met Treasury Officials and officials from HMRC (right at the top) plus I have given evidence to Parliamentary committees. To get to the point where VAT is going up AND they have done nothing to sort out a major abuse of VAT is just gross incompetence and total negligence.

  4. How can you possibly not regard this as a major problem ? Internet retail is the fastest growing retail sector! To allow it to be distorted like this is beyond stupid. Now you have to buy your way offshore and deal with a bunch of tax parasites if you want to have any hope of being competitive on-line. Well done George ! Brilliant! You managed to screw up the one trading platform where the little guys could compete with big guys. You deserve an award.

  5. Where has Mr Gauke been these last 5 years?. Clearly not to a shop on his High Street. This is the biggest problem facing independent High Street retailers yet this minister doesn’t even seem to know about it.
    The communication at this level of government is beyond belief

  6. Ironic that this was reported via the website, the name says it all. These are democratically elected MPs who only have jobs thanks to the support of English voters. Offshore businesses don’t vote to keep you in a job so why support them! A big thanks to Adrian and some other MP’s for keeping the issue alive in Parliament, they deserve our support.

  7. Adrian Sanders has been actively taking up this issue on our behalf over the last few months; I would also draw attention to :

    I would urge anyone who has not already done so to write to their local MP, highlighting jobs that are being threatened in their local constituency. Many MPs, especially those not familiar with Internet shopping, appear to be unaware that this abuse is happening as the Treasury seem determined to sweep it under the carpet.

  8. Chris

    Great work from your MP. He’s asking exactly the right questions.

    I note on that link in your posting David Gauke says that :

    “No estimate of the level of fraudulent claims has been made due to the difficulty of establishing the facts. This is because case law in this area as to what amounts to an abusive practice is unclear ”

    Well they certainly had no difficulty getting information from me regarding abuse in the music industry and finding companies abusing LVCR on the internet isn’t exactly difficult. The difficulty was that it took me five years to meet with HMRC despite talking to three heads of Anti-Avoidance and the previous head of HMRC International. HMRC refused to meet with me because they regarded circular shipping of UK products as a perfectly acceptable practice and they said that it was not in any way abusive. (I have that in writing). As for the lack of case law to establish abuse , not only do I have an opinion from an eminent and leading Tax QC who regards this as a very clear abuse of LVCR but the fact remains that HMRC haven’t actually tested the abuse argument (Halifax) on LVCR. The reason for that is simple. If they try the abuse argument, they will then have to pursue companies for abuse that had previously complained to HMRC that they were being forced offshore due to the unrestrained abuse of LVCR. Not only that but its been going on so long now with no challenge from HMRC that everyone thinks its legal. I’d even go as far as saying that HMRC have been supporting it!

    Keep going Adrian. This is one of the biggest screw ups HMRC and The Treasury have ever made and they are trying to cover it up. It needs exposing.

    What a cock up!

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