Mystery shrouds offshore VAT policy

The Forum for Private Businesses, the organisation of small companies, has
written an open letter to the chancellor calling for him to shut down an
offshore VAT loophole that allows retailers to avoid the sales tax on small

The move is the latest step in a campaign that began last year. Some are now
beginning to question what exactly is holding the Treasury back.

The problem for the FPB is that big retailers, including HMV and Tesco, have
used an exemption for VAT for goods under £18 to distribute, by mail order, CDs
and DVDs from places like Jersey and Guernsey. The move gives them a competitive
advantage over UK based small retailers, which are undercut by the move.

In the Budget this year, the Treasury said that it was ‘aware that [the]
provision is currently being exploited’, adding that it was costing it around
£85m a year. ‘If the relief continues to be exploited by businesses using
offshore locations, the government will consider changes to prevent this type of

So what is stopping it from closing the loophole now? The FPB maintains the
government could simply move to change the exemption threshold from £18 to £7.

But the Treasury says it is not that simple. A move to £7 would have a
substantial impact on other aspects of the economy in Jersey and Guernsey, it
says, and a derogation from EU rules would be no simple matter.

It is resting its hopes on the efforts of the local governments.

Jersey’s policy on the issue is that it recognises the problem (which it goes
so far as to call a ‘scam’), and that it intends to issue licences to such
people to operate for only a limited period. So, eventually, they will go away.

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