UK government closes VAT loophole

April 1, 2012, will mark the end of a tax loophole enabling companies to send mail order goods to the U.K. from the Channel Islands free of value added tax. The Channel Islands have experienced the advantages of low value consignment relief since 1998, and have been able to sell items such as CDs, vitamins and contact lenses for 20 percent less than mainland competitors. However, a campaign led by U.K. businessman Richard Allen has convinced the British government and the EU to eliminate the advantage and close the loophole.

Exchequer Secretary to the Treasury David Gauke said closing the loophole will ensure fair competition between Channel Island and mainland retailers.

"We are also protecting a significant amount of tax revenue," said Gauke. "By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of U.K. taxpayers and businesses."

Companies located on the islands can join the Import VAT Accounting Scheme, which enables automatic collection of taxes at the source. 

According to the Register, the Channel Islands drew attention to the VAT loophole, as most of the international parcel post from outside the EU came to the U.K. through the islands, leading to concerns that the LVCR was being exploited. Closing the loophole should not only bring in some needed revenue to government coffers, but lead to increased sales for onshore retailers.