Chancellor urged to abolish Channel Island VAT relief

SMALL BUSINESSES have called on the government to shut down a tax relief that allows companies to import small goods from the Channel Islands at a low cost.

The low value consignment relief allows companies to pay no VAT on goods that cost less than £18 imported from overseas, including the Channel Islands. It has been widely speculated that Chancellor George Osborne will announce reforms to the relief, which is believed to cost the Treasury at least £130m in revenues.

The Forum of Private Business has said that previous attempts to reform the relief have been unsuccessful, including a licensing scheme and a code of conduct. These had failed to protect smaller UK companies that cannot afford to send goods overseas and import them back again.

Phil Orford, the forum's chief executive, said: "There have been indications that the 2011 Budget will finally tackle the widespread VAT avoidance carried out by large, Channel Island-based retailers, which devastates high street shops and smaller online retailers, but any measures must genuinely end this anti-competitive tax abuse and not just create a smokescreen of the kind we saw with the Jersey license policy of 2005, and later Guernsey's non-binding code of conduct."

Revenue saved could help fund the community investment tax relief, which has helped raise almost £70m in affordable credit for businesses and social enterprises, he said.

"What better way to begin reversing the damage caused to our high streets by this long-standing practice than to use the additional tax revenue to support Community Investment Tax Relief and encourage investment in businesses and social enterprises in these same communities?" he added.