George Osborne is expected to use this month's budget to announce a crackdown on a ballooning internet mail order VAT exemption on the sale of CDs, DVDs, memory cards, vitamin pills and contact lenses, involving some of the biggest names in British
Industrial scale avoidance of VAT on these and other goods is estimated to have cost the exchequer £ 130m in lost tax revenues last year -- a jump of more than 50% on five years ago -- according to Revenue &
Treasury minister Lord Sassoon told the Lords: We are committed to tackling tax avoidance and, in that context, we hope to be in a position to announce possible changes to the operation of LVCR [low-value consignment relief] in the budget . He
added that, in contrast to the Labour government -- which had been closely reviewing the controversial European VAT relief since 2006 -- the new administration had immediately gripped the situation .
Osborne, who criticised the loophole when he was shadow chancellor, is thought unlikely to introduce any radical changes to the rules on LVCR without a formal consultation. The existing European LVCR rules on VAT -- drafted 28 years ago, long
before the potential of the internet had been imagined -- waive a requirement to pay VAT for low-cost goods imported from outside the European Union. Currently this applies to any goods bought for £ 18 or less.
The arrival of online retailing, however, has allowed larger firms to construct complex transaction and logistics structures, using Channel Islands-based subsidiaries or agent companies to qualify for the relief.
Campaigners against the VAT loophole have blamed it for pushing hundreds of smaller retailers, especially music and DVD stores, out of business. The number of independent stores in this area more than halved between 2005 and 2009, dropping from 985 to
446, according to the Entertainment Retailers' Association.
Update: Slightly Lower Value Consignment Relief
28th March 2011. See article
A Treasury press officer told the Register that the VAT exemption value would be reduced from £ 18 per package to £ 15. Given falling prices for DVDs and CDs we're
guessing this won't have a huge impact.
The change comes into force in November, and the Treasury will also talk to the European Community to see if more can be done.
The Forum of Private Business - which has campaigned against lower value consignment relief - said the £ 3 cut was not enough, describing it as an incredibly minor tweak. It said that small businesses which
charged their customers VAT could still not compete with big players with offshore warehouses.
The FPB said the proposed timeline was far too leisurely to help struggling smaller retailers.