The Coalition Government seems to be serious about changing VAT rules which currently allow big retailers to dispatch items via the Channel Islands in order to avoid paying the tax.
The exemption was designed to protect Guernsey's flower growers but has been exploited by the likes of Tesco and Amazon who can undercut prices for DVDs and CDs by selling them VAT-free from warehouses on the islands.
The Treasury reckons it is losing about £130m in tax per year thanks to the loophole. Lord Lucas questioned this figure because one of the largest companies involved in the trade turns over £500m.
Lord Sassoon told the House of Lords: "We are actively reviewing the operation of this relief. Ministers hope to be in a position to announce any possible changes to the operation of LVCR (low value consignment relief) flowing from the review in the Budget on 23 March."
The law was designed to protect small firms from excessive red tape by excluding small value items from paying VAT. The law also meant Customs and Excise were not forced to inspect every little parcel which arrives from outside the EU. Items below £18 can be imported without paying VAT.
In reality the law has made it all but impossible for independent CD or DVD sellers to compete unless they move to the Channel Islands. ®