If you’re used to buying cheap DVDs and CDs online, you’ll have to cough up more as the government closes a Channel Islands tax loophole. It claims to be helping small businesses, but will our wallets suffer?
Since 1973, the Channel Islands has benefited from the snappily titled Low Value Consignment Relief, which exempts companies from paying VAT on items sold for less than £15. It basically meant companies in the Channel Islands could sell products up to 20% (current VAT) cheaper than retailers in the UK.
In recent years this encouraged major retailers to base their online operations and warehouses on the islands – Amazon, Play.com, Tesco and Asda all set sail for sunny days in Jersey. As a result, online shoppers benefited from prices substantially cheaper than on the high street.
VAT avoidance loophole closed
The government has finally found out how much fun we’ve been having – and more importantly how much money it’s been missing out on – and it’s come to turn the music off.
From 1 April next year, the government will sew up the loophole and major retailers are already saying they’ll be forced to increase prices.
The Treasury claims ‘these reforms will ensure that UK companies, especially small and medium sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands’.
It’s a wonderful fairytale. Call me a cynic, but the government is more likely interested in the extra £140 million in revenue it will pocket. I do, however, agree with the sentiment.
I like cheap prices. Much of my DVD shopping over the past decade has been done from the comfort of my bed, but I can see that it’s patently unfair that major retailers who can afford to set up business in Jersey are consistently undercutting high street retailers.
Spare a thought for our high streets
Britain’s high streets are seriously struggling. Back in June a report by Colliers International property consultants estimated that a quarter of our high streets were failing. Just this week we published a Conversation on struggling high street electrical stores on the back of Best Buy UK throwing in the towel. Comet was sold for less than the price of a sandwich a day later.
The small town high street where I grew up in the Midlands is an increasingly depressing line up of banks, pound shops and an impossible collection of card shops – birthdays are apparently big business in Staffordshire.
I don’t have a great deal of sympathy for big high street shops, online retail is sticking the knife into them the way they did to ‘mom and pop’ shops back in the nineties with out-of-town retail. But I think the end of this tax loophole at least gives the remaining small businesses on our high street the opportunity to be competitive.
Ultimately, do I want to pay more for my DVDs? No. Nobody does. But do I want a high street where all you can buy is a pack of 24 batteries for a pound and rolls of wrapping paper? No. Whether we should be paying 20% VAT on purchases is a larger argument, but all businesses should be forced to cough up the same amount. It’s only fair.
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