Tax avoidance rule misses Channel Islands VAT loophole

GOVERNMENT PLANS to clamp down on tax avoidance through a general anti-avoidance rule (GAAR) have missed out a Channel Islands VAT loophole that costs the Treasury hundreds of millions of pounds per year and hits independent traders, a business group has warned.

Many large retailers have set up shop in Guernsey and Jersey and benefit
from low value consignment relief (LVCR), which allows goods worth up to
£18 to be imported into the UK VAT-free, said the Forum of Private Business (FPB).

While some consumers buying items such as online DVDs have seen prices
fall, many small shops and UK mainland based internet retailers are unable
to compete or move off-shore themselves and are being forced to close, said the FPB, which represents small businesses.

Following its pledge to address tax avoidance in the June Budget, and
October’s Comprehensive Spending Review (CSR), the government has announced legislative changes aimed at clawing back some of the £7 billion of tax revenue that is lost annually through tax avoidance, said the FPB.

Immediate measures include preventing groups of companies using intra-group loans or derivatives to reduce their tax bill and reviewing schemes in which companies do not fully recognise loan and derivative monies in their

In addition, ministers have commissioned a feasibility study into a
potential ‘Government General Anti Avoidance Rule’ (GAAR).

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