By Marcus Leach

The Forum of Private Business has welcomed the Government’s announcement it will scrap a Channel Island’s tax loophole allowing large Internet suppliers to dodge VAT as of next year.

The Government made the announcement yesterday that as of April 1 Low Value Consignment Relief (LVCR) would cease.

The loophole has allowed supermarkets and Internet shops to purposefully avoid VAT on items such as CDs, DVDs, computer games and beauty products by routing products through the Channel Islands.

The measure was originally designed to speed up the transit of low value perishable goods through the postal system, but was hijacked by large retailers to slash their online prices, and effectively allowing them to significantly undercut smaller, independent retailers.

“The Forum has been campaigning on this issue for years and we’ve been calling for an end to this as part of our Get Britain Trading campaign, so it’s excellent news," Jane Bennett, Head of Campaigns at the Forum, said.

“Virtually all the main players in the online industry mail CDs and other similar items like Blu-Ray discs from the Channel Islands to customers. This totally unfair loophole has allowed them to totally dominate the market and put thousands of small, independent traders out of business.

"Today’s announcement will mean at long last a level playing field in the market, and the remaining independent record shops will be able to compete with the big boys on equal terms again. It’s excellent news for the high street.

“It’s good to see the Government has listened to the concerns of small retailers and has acted decisively to stop this unfair, unjust practice. Of course, it will mean a few more pounds heading to Treasury coffers on every purchase, but I’m sure there will be a lot of happy record shop owners today.”

Other goods which have exploited the loop-hole include flowers, customised greeting cards, batteries, contact lenses, perfume, vitamins and printer cartridges.

Richard Allen who has been campaigning on the issue since 2005, before joining Retailer Against VAT Abuse Scheme as their spokesperson in 2009, commented:

“The removal of this major market distortion should be welcomed by all UK businesses that wish to trade online.

“The Channel Island’s VAT loophole has over many years destroyed livelihoods and caused much misery among the UK business community. We are of course sympathetic to those Channel Island employees who may lose their jobs as a result of the ending of this industry, but we think it is entirely disingenuous for commentators to blame the loss of that employment on those attempting to correct what is clearly an unacceptable, unsustainable and damaging abuse of the tax system

“The VAT loophole is not only contra to the basic principles of EU law, but is also contra to any sense of fair play and a ‘moral market’.

“Although we welcome competition based on price and service, a scheme that abuses tax legislation in order to promote damaging and predatory competitive behaviour should never have been allowed to develop.

“We hope that the UK Government and EU will now remain vigilant and ready to close down any similar schemes should they develop in other locations.”

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