Government reduces LVCR

Delivering the budget on 23rd March, Chancellor George Osborne said that from November 2011, Low Value Consignment Relief (LVCR) will be reduced from £18 to £15. The move seeks to prevent the abuse of a tax loophole that allows businesses operating out of the Channel Islands to sell goods with a value of less than £18 without VAT.

Derek Jarman, a director at Worcestershire-based Hayloft Plants, welcomed the news but called on the government to lower the threshold even further. “To use the LVCR and make the most of the VAT savings you have to be a large company with a large turnover, which Hayloft Plants isn’t.” He estimates that if he were to relocate plant packing to the Channel Islands “purely to save paying VAT on our customer sales”, for the financial year to 31st October 2011 he would save approximately £400,000 in gross VAT. Jarman has contacted his local MP and received support to take up the issue.

On the opposite side of the fence is Graham Winn, a director at Guernsey-based Flowercard. He argues that lowering the threshold from £18 to £15 doesn’t address the real problem—after all CDs and DVDs generally cost less than £15. He says that lowering the threshold would only hurt local businesses operating on the Channel Islands. Cutting LVCR to £15 will “harm legitimate local companies”, says Winn. It won’t be the big corporations and supermarkets that will be affected; it will be local florists and other businesses who still have to pay taxes in the Channel Islands, labour costs and freight. “In addition,” he says, “we are led to believe the chancellor is also looking to go to the EU to derogate against CD and DVDs so they cannot be imported VAT-exempt at any price.”

The change from £18 to £15 will affect Flowercard so much that Winn says he is researching whether to move product despatch on-shore. “There are two options,” he says, “reduce the average price to £14.99 and cut 15 percent from margins, or increase the price to £19.99 and move despatch on-shore.” 

The Hut Group, a company that fulfils CDs, DVDs and games among other items from the Channel Islands, declined to comment.