An announcement from the Guernsey Post in the Guernsey Press claimed to reveal that the company is saving the UK from collecting VAT up to the tune of £5.6 million a year. This is VAT that has been collected under what is known as the VAT Pre Paid Scheme where traders in the Channel Islands are able to pre-pay import VAT on items over £18 so that the goods do not have to go through customs. What Guernsey Post fails to mention is the fact that whilst VAT has been collected on goods over £18 in value, even greater amounts of VAT has been lost on goods below £18 that qualify for LVCR. The majority of these LVCR qualifying items would have attracted VAT in the UK if they had not been routed offshore.
Similarly Jersey Post boasted in 2005 that it had collected over £8m in VAT for the UK Government but failed to mention that 40m of VAT was lost through LVCR giving a net loss of £32m in VAT to the UK Treasury. Most of that loss was due to Play.com.
Many traders in Guernsey and Jersey are now registered for VAT in the UK and don’t even bother sending goods over £18 in value from Jersey or Guernsey as that would just be a wasted journey at extra cost and for no tax advantage. Play.com and Guernsey based Thehut.com are VAT registered in the UK.
If these companies were prevented from circular shipping goods of less than £18 and were made to account for VAT on the UK mainland then that really would save money.