The Abuse of LVCR

We believe that exporting goods to a location outside the EU which exists for no reason other than to reimport goods back into the EU VAT free through the operation of  LVCR is an abuse of LVCR . In our view this Abuse is leading to tax avoidance on a huge scale and creating a major market distortion in internet retail in the UK. Whilst it is currently legal to operate a compliant avoidance scheme to take advantage of LVCR we believe that the UK’s failure to use it’s discretion under the  LVCR directive to exclude mail order goods  has created a major market distortion that puts it in breach of EU law. It is our opinion (based upon legal advice) that circular shipping of UK/EU goods via a non EU location to gain LVCR relief is an abuse of LVCR. We  call upon the UK government and the European Union to challenge such arrangements and clarify whether or not they are abusive.

Those affected by tax free imports from the Channel Islands are not specifically troubled by the existence of Low Value Consignment Relief (LVCR) as much as the apparent abuse of a system originally designed to allow genuine non EU imports to enter the EU/UK VAT free.  Ordinarily only non-EU goods would benefit from the operation of LVCR.

LVCR is mainly applied in The Channel Islands to goods that have been deliberately exported to the Channel Islands from the EU in bulk so that they can be reimported individually back in to the EU in order that the retailer can take advantage of the VAT relief.  We believe that this practice is an abuse of the EU tax system in that its essential aim is to gain tax relief contra to the intent of European Directives covering LVCR. The LVCR Directive was not drafted to give retailers a VAT advantage in the internal EU market.

In the 2006 a major European VAT abuse Judgement won by HMRC and called  Halifax, defined VAT abuse  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 other words if the main purpose of carrying out a transaction is to gain a tax relief and if that transaction results in a tax relief that is contrary to the intention of the legislation surrounding that tax relief, then  that transaction is an abuse.

The UK is legally obligated to prevent abuse  of  LVCR and any resultant tax avoidance and market distortion yet has failed entirely to take any action to stop the blatant export and reimport of UK goods via the Channel Islands to gain VAT relief through LVCR.

LVCR legislation is not intended to grant VAT relief to goods in the EU that have been deliberately exported from the EU in order to gain the relief. In the case of LVCR and the Channel Islands it is clear that goods are being exported to the  Islands  in order to gain the VAT relief on reimport via LVCR. The way that LVCR is being exploited via The Channel Islands is therefore in our view abusive.


Under the directive covering LVCR goods that are deemed abusive  do not qualify for the relief. This would mean that companies that were previously avoiding VAT by exporting goods from the UK or EU in order to benefit from LVCR  may well be liable for VAT, and under the Halifax ruling that would be retrospective. In our view the proper application of LVCR is to exclude goods that have been deliberately exported from the UK/EU. That would stop the avoidance of VAT and distortions of competition that have been destroying UK mainland retail.


This website has received some fairly angry emails from Channel Island retailers stating that the fact they have been allowed to continue exploiting LVCR indicates it must be a legal practice, and our website is scaremongering. Our high quality legal advice clearly indicates that, for the reasons previously stated,  the practice of circular shipping goods via a non EU location to exploit LVCR is not legal under EU law. We would however totally agree that if retailers have been allowed to continue trading in this manner by the UK authorities, they can’t be held entirely responsible particularly if they have been forced to locate offshore in order to remain competitive in a hugely distorted market that’s resulted from their negligent inaction. That is an issue that individual retailers would have to take up with the UK Authorities and the EU Commission if the practice is confirmed abusive. If you have concerns about this issue please contact us via the contact form in the ‘What Can Be Done ? ‘ section of this site .


  1. It’s just sour grapes that you live in a country that is basically bankrupt. If your government charged less tax, ie VAT, the practice would dry up overnight. Your country has overspent, unlike Guernsey. Oh, sorry no it can’t take less tax as it’s bankrupt. Get over it.
    John, Guernsey

  2. So, John, basically what you’re saying is that we should stop encouraging legitimate UK businesses to move to Guernsey for no reason other than to benefit from a cheap tax dodge.

    I think you’ll find many users on here that agree with you.

  3. “Our high quality legal advice clearly indicates that, for the reasons previously stated, the practice of circular shipping goods via a non EU location to exploit LVCR is not legal under EU law.”

    “High quality legal advice” – a matter of opinion as is the views of these so-called high quality lawyers. Ultimately it’s for the courts to decide. At the time, the Halifax decision appeared have far reaching consequences for VAT planning. However, during the intervening years this hasn’t proved to be the case and it is interesting to see how the courts interpret and apply the decision and the abuse of rights principle. Presumably you have bothered to read recent cases such as Weald Leasing that consider how Halifax should be applied because “circular shipping of goods” is (in your opinion) clearly abusive.

    There are plenty of people out there, with a better understanding of the law than these so-called high quality lawyers, who would argue that this practice isn’t abusive and isn’t illegal.

    1. I’m sure abuse (or tax planning as we are sure you would prefer to call it) could be debated for an age, but putting aside the issue of abuse (and we have no need to doubt the efficacy of our advice) it is the UK that is under an obligation to not only prevent Abuse (however that may be defined) but more obviously Avoidance and Market Distortion, both of which you must agree are taking place on a massive scale. If the UK can openly flout EU directives (including the principle VAT Directive) then EU law is clearly worthless something we as yet have no reason to believe.

      1. “There are plenty of people out there, with a better understanding of the law than these so-called high quality lawyers, who would argue that this practice isn’t abusive and isn’t illegal” Yes but even if it isn’t illegal the UK is in breach of Principal VAT Directive and LVCR Directive for allowing Avoidance through LVCR. And that is clearly why Osborne and Co are taking action now. UK is in breach of obligations under EU law and that is illegal!

  4. Ben, You obviously haven’t kept up to date. The Weald appeal was a success in 2007 but unfortunately for them late last year this happened :


    The ECJ has agreed with the Advocate General’s opinion in the Weald Leasing case – the transaction was abusive.

    Advocate General Mazák released his opinion in the Weald Leasing case in late October, and said that an exempt business can lease assets to avoid the large amount of irrecoverable input VAT that would be incurred in buying the assets outright, but leasing using artificially low rents with a third party interposed to avoid market value substitution is “abusive” on the principles set out in the Halifax case. The Court has basically agreed with the Advocate General’s opinion. The fact that the taxpayer does not engage in leasing transactions in the context of its normal commercial operations is not a factor that should be
    taken into account in deciding whether a transaction is abusive. The Court has referred the question of whether the transactions were actually abusive back to the UK courts.

    LVCR abuse is far easier to prove.

  5. Also there is only one reason HMRC has not taken abuse action over LVCR and that’s because of the fact that companies are in the Channel Islands who don’t want to be there, who have been forced offshore by the market distortion created by the UK Authorities allowing this to go on for so long. HMRC would be pursuing essentially innocent parties who were faced with the choice of ruin or offshore fulfilment. Once they have figured out how to separate the innocent from the tax avoiders I’m sure they will come knocking.

  6. Richard I have kept uptodate. The point in Wealds was that only the non-market rate rent was abusive. The other aspects (the fact that there was a lease) was OK.

  7. So what is the relevance to sending parcels to Jersey and back ? I know the tax planning debate going on at present in relation to Halifax but surely the kinds of transactions going on around LVCR have no economic purpose and the end result is clearly contrary to the intention of the LVCR Directive which intends to grant VAT relief to the importer for administrative reasons, not a tax advantage to a UK retailer. And then what about Avoidance and Market Distortion ? Curious to hear the counter view….

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