All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

VAT relief to end for Channel Islands

ch-is.jpg

The UK has decided to end VAT relief on products from the Channel Islands.

Low value consignment relief was established in the 1980s, aimed at reducing the costs associated with collecting very small revenues from the tax.

“Originally it was an administrative relief,” said Andrew Burman, senior director at Alvarez & Marsal Taxand UK. “There is a cost associated with collecting lots of small amounts of VAT and cost-benefit analysis showed that it was not worth collecting those small amounts.”

The relief permitted companies to export goods below the threshold of £18 ($28) to the UK mainland without incurring a VAT liability. But in March this year the government reached a decision to lower the value threshold from £18 to £15, effective from November 1 2011.

It has since been revealed that the relief will be scrapped altogether on April 1 2012. Some companies took advantage of the relief but a number of abuses have prompted its removal.

“There is perhaps an argument that it should never have been introduced in the first place,” said Burman. “It was meant to cut administrative burdens, but it presented obvious opportunities for planning schemes due to the Channel Islands being so close to the UK mainland, among other reasons.”

Companies were able to undercut their competitors by not paying VAT and this gave rise to an unfair advantage.

Some of the islands’ inhabitants claim that the exemption offset the additional transport costs felt by companies based there, arguing that it should not be abolished. There has also been discussion of whether the Channel Islands have grounds to challenge the abolition on the basis of discrimination.

“I’d be very surprised if the UK would have done this without consulting EU lawyers or officials,” said Burman. “One argument the UK government could use if the decision is contested on the grounds of discrimination is that abuse has been higher in the Channel Islands than anywhere else.”

More from across our site

The Indian Union Budget made some significant changes that will affect taxpayers, as Ranjeet Mahtani, Saurabh Shah, and Meetika Baghel of Dhruva Advisors explain.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree