Some of Britain's most popular retail websites, including those run by Tesco, Amazon, HMV and Play.com, will have to stop selling VAT-free CDs,
DVDs, memory sticks and other goods from the Channel Islands from next month.
The developments comes after a legal challenge by Jersey and Guernsey was dismissed in the High Court. While the decision is almost certain to attract an appeal, it will not stop the chancellor from pressing ahead with his plans to ban the trade.
The ruling marks the end of years of campaigning by retailers who told the Treasury they were unable to compete with VAT-free prices online.
Last week, the Observer revealed that two of the largest VAT-free web retailers already had advanced plans to shift to other territories outside the EU, such as Switzerland, in order to continue exploiting LVCR. However, campaigners suggested the
logistics involved were unlikely to make that practical. In any event, should they successfully establish an LVCR operation elsewhere, it is likely the chancellor would act again.