Government puts an end to LVCR loophole

Guernsey and Jersey have lost their battle to stop the UK
government scrapping low-value consignment relief (LVCR).
Chancellor George Osborne announced in November he was abolishing
LVCR from 1st April this year, effectively closing a 30-year
loophole that allowed goods worth less than £15 coming from
the Channel Islands to ship VAT-free.

The decision to scrap LVCR was challenged in the High Court by
the governments of Jersey and Guernsey, which claimed that
putting an end to LVCR would be discriminatory and illegal.
Following a three-day hearing, Justice Manning found that though
there was no evidence of “abuse” of the scheme, the
UK government was well within EU law to abolish the practice of
LVCR in the Channel Islands.

The decision was welcomed by pressure group Retailers Against VAT
Abuse Schemes (RAVAS) and organisations such as the Forum of
Private Business, where senior policy adviser Phil McCabe said
the ruling was “a victory for common sense”. These
groups have long argued that exploitation of LVCR by large
companies was “both anticompetitive and amounted to tax
avoidance”. A change to the system is “lawful and
necessary” in order to protect small high street shops and
online traders in the UK, they say.

RAVAS spokesman Richard Allen, who provided evidence at the
inquiry, stated, “The long-term and blatant abuse has
destroyed many UK businesses which, other than for the lack of a
20 percent trading advantage, would have been viable healthy
operations giving people jobs and generating tax revenue in the
UK.”

Firms prepare to leave the Channel Islands
In a statement, Jersey’s economic development minister, senator
Alan Maclean said he is considering lodging an appeal to overturn
the High Court’s decision. Since the announcement in November,
businesses on the Channel Islands have been working to mitigate
the effect of the end of LVCR. The Jersey government, for
instance, has outlined two main priorities, explained Alan
Maclean,“First, we will continue our work to find other
ways to support fulfilment businesses, in particular finalising
plans to support the development of other markets. Secondly, we
will deploy our back-to-work taskforce to support all those whose
jobs may be at risk.”

Deputy Carla McNulty Bauer, minister for commerce and employment
for Guernsey, stated she was very disappointed with the outcome,
and warned the move “could well have a major impact on jobs
and the economy of the Channel Islands”.

Indeed, several businesses in Guernsey have already announced job
cuts, including online retailer 7DayShop. The business is axing
30 jobs in its despatch department, but 20 staff remain with the
business. At vitamins and supplements marketer Healthspan, 26
staff have been given formal notice that their roles will likely
be made redundant. Chief executive Graham Case said in a
statement that “Healthspan has had no choice but to seek
out alternative locations for the warehousing and shipment of
goods in order to remain competitive in the
marketplace.”

Graham Winn, a director of Guernsey-based fresh-flower gifts
marketer Flowercard, told Direct Commerce his company
moved 75 percent of its production operation off the island when
LVCR was lowered to £15 in November. He feels the UK
government didn’t look at the bigger picture, “I’m
disappointed for the thousands of people who it will put out of
work,” he comments. “I also believe the treasury
overestimates the lost revenue as business will move to other
jurisdictions-so the UK won’t get the VAT tax-which will also
increase the cost of processing these imports through customs
handling. The Channel Islands were exempt from this and injected

Winn moved three-quarters of his operation to the UK and is still
considering alternative destinations, including Holland,
“due to the proximity of the flower market”. For the
time being, he says, 25 percent of the business will continue to
operate from Guernsey.

LVCR was created almost 30 years ago as an administrative relief
for perishable goods sent by post. The past decade saw many large
companies, including Tesco and Amazon, move operations off-shore
in order to exploit it.

Aaron Chatterley, chief executive of Jersey-based beauty products
etailer Feelunique, says the decision to scrap LVCR hasn’t had a
direct effect on his business, but adds that he knows “of
three companies currently planning moves to Switzerland”.
As LVCR will continue to apply to goods priced at £15 or
less imported from other EU territories, we may see many more of
the Channel Islands’ firms move to other tax havens.