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Tax Tip

VAT Loophole closed 14/11/11

The Treasury is to end the era of cheap DVDs, contact lenses and birthday cards by scrapping an exemption from VAT for low value items dispatched from the Channel Islands. The zero rate of VAT for goods valued at less than £15 that has been exploited in the Channel Islands by internet retailers serving the mainland

The relief, which is costing the Treasury more than £100m a year and is seen as an unfair advantage by mainland-based UK retailers and distributors that have to pay VAT, will end on April 1.

The move will affect the likes of music and games retailer, which was sold in September for £25m and Moonpig, the online card retailer that has a large operation in Guernsey and was sold by its founder for £120m in July. HMV, Tesco and Amazon also have distribution warehouses on the islands.

However, it is seen as a positive move, not just a treasury money trawling activity by many mainland groups:

The Forum of Private Business said the relief had “put thousands of small, independent traders out of business”.

And the Retailers Against VAT Avoidance Schemes welcomes the change and says with certain sectors being VAT-free, there is no point in competing in DVD sales online unless you are based off-shore.

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