VAT-free imports from the Channel Islands to the United Kingdom took place for a few years during the early 21st century as a result of low-value consignment relief (LVCR).
[3][4] The reasons for the success of Internet retail are varied, covering factors related to convenience, time saving, breadth of choice, and price.
Nevertheless, the low price offered by online music retailers such as Play.com, Amazon.co.uk, TheHutgroup.com and HMV plays a significant factor in these sites' popularity.
[5] A study by the Kantar Group found that in 2009 there was an 18% increase in the volume of online CD sales bought by UK customers.
This meant they did not charge VAT on purchases but there was a free movement of industrial and agricultural goods in trade between the Islands and the Union.
[6] Historical documentation indicates that LVCR was originally allowed by the UK for the Channel Islands in order to expedite agricultural goods grown in Jersey and Guernsey such as fresh flowers, and daily mail that would have been damaged by the delay caused in VAT processing.
In a written answer on 18 June 2008 to Janet Dean MP, the then Financial Secretary to the Treasury, Jane Kennedy stated that three quarters of the VAT avoided due to LVCR "was attributable to imports from the Crown dependencies".
"[12] The book Last Shop Standing [13] by Graham Jones (one of the founders of Music Distributor Proper Distribution) details the detrimental effect VAT-free mail order had on UK music retail, whilst specialist Internet retailers such as freakemporium.com have cited VAT-free mail order as the main factor in their demise.
In relation to LVCR and the Channel Islands it recommended that "The UK Government should immediately apply the lowest threshold applicable for the relief of low value consignments permissible in the directive, which is currently 10 euros (approximately £7) – this would eliminate the vast majority of exploiting trade almost immediately" it also recommended that "The enforcement, by government bodies like Customs and Excise, of VAT should be reviewed to ensure a level playing field" [18] Another group of retailers, called the Retailers Against VAT Abuse Schemes (RAVAS) filed a complaint with the EU Directorate of Taxation, alleging that the UK Government had breached the Directive covering LVCR by failing to take action to stop abuse.
[citation needed] They said that the UK Government could have stopped the growth of LVCR trade by taking legal action against major retailers under Halifax, or by using its discretion to lower the threshold to €10, remove mail order goods from the relief or request the Channel Islands lose the right to benefit from the relief in relation to DVDs and CDs which is known as a derogation.
[19][20] The retailers argued that by failing to stop abuse of LVCR the UK Government was in breach of the Principal VAT Directive (previously the Sixth VAT Directive) which states that the conditions for EU tax exemptions such as LVCR should be laid down "for the purposes of ensuring the correct and straightforward application of those exemptions" and to prevent any "possible evasions, avoidance or abuse".
Due to pressure from UK retailers and trade body the Forum of Private Business (FPB), the Government of the United Kingdom mentioned the LVCR issue in the 2006 Budget wherein they stated "In 1984, a VAT-free threshold on imports of small commercial consignments from outside the EU was introduced at a level of £18, as an administrative relief.
[22] In early 2010 the UK Treasury issued a statement to The Guardian that said "The implication that businesses are simply setting up on the Channel Islands to take advantage of this relief is not true.
The Guernsey authorities also said that three of the largest retailers on the Island had agreed to voluntary caps on the amount of VAT that they could avoid by way of LVCR.