Removal of Channel Islands VAT loophole is consistent with EU law, court says

The Channel Islands had challenged the decision to remove low value consignment relief (LVCR) from imports from those territories from 1 April 2012. LVCR will continue to apply to goods priced below £15 imported from other EU territories.

Announcing the new policy in November, the Treasury said that exploitation of the loophole cost the Government around £140 million annually. UK-based retailers including Amazon, Play.com, Tesco and greetings card company Moonpig have used the arrangement to despatch goods ordered online including CDs and DVDs from the islands.

In his judgment, Mr Justice Mitting said that there was "no legal requirement" for the UK government to treat all non-EU territories the same way, according to the BBC.

However, he said that there had been no evidence of "abuse" of the scheme, and that retailers had been doing "no more or less than exploiting fiscal advantage".

Senator Alan Maclean, Economic Development Minister for Jersey, said that he was "disappointed" with the Court's decision and was considering an appeal.

"The decision to seek to clarify the legality of this proposal was the right one," he said. "The changes, which are targeted against the Channel Islands alone, create an uneven playing field. We know that some businesses will find it difficult to compete under these circumstances and, as such, jobs are likely to be lost."

Since the proposal was announced in November the island has been working on measures to support the fulfilment industry, Maclean said, including working on developing other markets and deploying a Back to Work taskforce to support those whose jobs may be at risk. "These strands of work will become our over-riding priorities," he said.

Jersey's government has said that about 700 people are "directly employed" by companies selling low value goods while another 800 people will be "indirectly affected" by the end of the scheme. Guernsey has a further 600 people working in the export trade.

LVCR can be applied to good imported into an EU country from outside the EU. It allows member states to exempt shipments of low value from VAT in order to avoid the administrative costs associated with collecting small amounts of tax, and to speed up the transit of goods which might otherwise be delayed by customs.

The UK Government reduced the threshold below which items could be imported to the UK free of VAT to £15 from £18 from 1 November 2011. The Government had previously announced that it was exploring options to "limit the scope" of the relief in the 2011 Budget.

Jersey announced in 2006 that it was expelling UK retailers including Tesco and Amazon that had been using the island as a means to avoid VAT payments. However, both companies currently use agent firms such as Indigo Starfish and The Hut Group, based on the islands, as distributors.

Two weeks ago Indigo Starfish announced that it was putting more than 200 staff at risk of redundancy as a result of the changes, according to the Daily Telegraph. Guernsey-based vitamin supplier Healthspan is considering relocating its warehouse and has given its 26 staff formal notice of redundancy, its chief executive Graham Case told the BBC.