From 1 April 2012, Low Value Consignment Relief (LVCR) will no longer apply to goods imported to the UK from the Channel Islands.
This ends the exploitation of LVCR which, in recent years, has been used on an increasingly large scale to sell low value goods to UK customers VAT-free, a purpose for which it was never intended. Most of this trade is from, or via, the Channel Islands. This reform will ensure that UK companies, especially small and medium sized enterprises, can compete on a level playing field with companies operating in the Channel Islands.
The Government's intention to take action to end the exploitation of LVCR was announced in Budget 2011 with the reduction in the threshold for LVCR, below which items are imported free of VAT, from £18 to £15. This new threshold came into effect on 1 November 2011 and will apply to goods from the Channel Islands until 1 April 2012. The removal of LVCR to all goods imported to the UK from the Channel Islands will have effect for purchases made on or after 1 April 2012.
Some answers to commonly asked questions about LVCR are listed below.
Q. Why has the threshold for LVCR been reduced from £18 to £15?
A. This was the first of a number of measures to reform LVCR and it aims to protect tax revenue for the Exchequer whilst taking into account the administrative costs of collecting small amounts of VAT.
Q. What types of goods are sold by the companies exploiting LVCR?
A. The most well known are CDs and DVDs. However, there is an increasing array of other low value goods being sent from the Channel Islands including cosmetics, cut flowers, video games, health supplements, PC consumables (e.g. printer cartridges), stationary, greetings cards, clothing, toys, sports accessories and contact lens solutions.
Q. Why are you removing the relief completely from the Channel Islands?
A. To protect small and medium sized businesses in particular from unfair competition and to protect the revenue.
Q. Why the Channel Islands and not other non-EU countries?
A. Most companies who have deliberately moved their operations to supply goods from outside the EU to UK consumers have set them up in the Channel Islands. 75 per cent of all international parcel post to the UK from outside the EU is estimated to originate in the Channel Islands.
Q. Will companies just move their operations to another non-EU country?
A. Probably not. Most companies based in the Channel Islands benefit from an HMRC trade facilitation measure, the 'Import VAT Accounting Scheme' which allows automatic collection of UK import VAT at source. Packages are not delayed at international postal sorting offices as an assessment is made of the VAT due and the end consumer avoids an £8 surcharge to cover Royal Mail's administrative costs. The ease of access of companies based in the Channel Islands to the UK consumer market via the postal system is therefore similar to that of domestic UK-based companies rather than to their non-EU counterparts.
Q. Would you remove the exemption from other
A. The impact of these changes is being closely monitored. If there is evidence that there is diversion to other non-EU countries to exploit LVCR the Government would consider the case for additional action.