| Value Added Tax-free Exports From The Channel Islands |
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BACKGROUND The Channel Islands consist of the two Crown Dependencies of Guernsey and Jersey , which are self-governing, but historically linked to The Crown . As such they are not part of the European Union and do not charge VAT on purchases (although a Goods And Services Tax is due to be introduced in Jersey in 2008 ). When goods are imported into the United Kingdom from a non EU territory, an Excise Duty is charged at the same rate as VAT (currently 17.5% for most goods). However due to an EU regulation designed to reduce the cost of tax collection on small consignments, an exception is made on shipments where the total value is less than £ 18. This is an administrative relief known as Low Value Consignment Relief or LVCR. It can be set between 10 and 22 Euros by individual member states of the EU. The UK set the limit at its maximum level. Items such as DVD s and CD s commonly cost less than this £18 threshold, and therefore if sold from one of the Channel Islands, no VAT or Excise Duty needs to be paid. Often the reduced tax liability outweighs the increased postage costs, meaning that the Jersey-based retailer can undercut competing retailers based on the UK mainland. Because the Channel Islands are so close to the UK it is easy to export UK goods to the Islands and in recent years the Jersey Post Office, through its sister company Jersey Post Logistics, has set itself up as an internet fulfilment operation taking full advantage of the LVCR service so that goods can be sent from the UK to Jersey and back again by mail within 48 hours. As it has become easier to sell by Mail Order with the growth of the internet, the practice of selling CDs and DVDs through the Channel Islands has become more common, particularly since Jersey and Guernsey are part of the UK postal system and benefit further from lower postage rates. A similar situation does not exist between the Isle Of Man , another Crown Dependency, and the UK, as VAT is levied in the Isle of Man. CONTROVERSY Certain UK companies have described this position as a Loophole and have described the trade as Tax Avoidance , claiming that they are losing turnover on low value items through losing customers to companies selling direct from the Channel Islands What is certain is that the bulk of the goods sold through the Channel Islands are UK products exported to the Islands and then mailed back into the UK VAT free. GOVERNMENT REACTION The Government of the United Kingdom mentioned the issue in the 2006 Budget wherein they stated that they were aware of the abuse of the Low Value Consignment Relief by companies who had set up in the Channel Islands and that they would introduce legislation to stop the avoidance of VAT if companies continued this behaviour. The 2006 budget also stated that £85 million per year was currently being lost in unpaid VAT as a result of this trade. This amount is expected to rise to £200m soon. The States Of Jersey have made moves to change the rules and have stated that companies who export to the UK must obtain a licence. They say that this is to ensure that the Island is not taken advantage of and that a tangible economic benefit remains in the Island. More recently, owing to the bad press generated by the expansion of the fulfilment industry in the Channel Islands, the Jersey Government has announced that it has asked certain UK retailers to cease their operations there within 12 months, although wholly-owned Jersey companies will still be allowed to continue trading. Despite these changes the bulk of customers for CDs and DVDs remain on the UK mainland and the VAT avoidance mail order industry continues to flourish in the Channel Islands. RETAILERS OPERATING FROM THE CHANNEL ISLANDS The following is an incomplete list of retailers that sell to the UK from the Channel Islands to profit from the tax regime. Jersey
Guernsey
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| Url | http://customshmrcgovuk/channelsPortalWebApp/channelsPortalWebAppportalid=HMCE_CL_000014&propertyType=document#P58_4584 |
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| Title | Are import duties and import VAT always payable |
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| Work | Notice 143: A Guide for international postal users |
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| Publisher | Her Majesty's Revenue And Customs |
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| Year | August 2005 |
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| Accessdate | 2005-12-29 |
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