Online DVD prices to rise as government abolishes VAT loophole HCC News Team - 18 August 2009 - 11:42am Major retailers including Amazon, Asda, Argos, HMV, Play.com and Woolworths.co.uk. could lose out as the government is considering abolishing a VAT loophole which allows them to source cheap DVDs via the Channel Islands.
The loophole allowed retailers to avoid paying VAT on goods costing under £18 which were shipped from the Channel Islands. It seemed to make sense at the time, as it was costing more to collect the tax than it was worth, but independent High Street retailers complained that this gave an unfair price advantage to the majors - particularly as they sometimes shipped goods out of the UK to the Channel Islands and back again to qualify for the exemption. Now it seems that the loophole is to be closed, and the price advantage will disappear.
The Guardian reports that a leaked Treasury letter reveals the practice may be abusing rules and is “under review”. One business has apparently already been challenged, but "no precedent was set... as the business in question accepted ... they had accounted for VAT incorrectly."
The Treasury is now keen to claw back the estimated £110m it loses every year to this practice, as online sales of DVDs and CDs to the UK grow to an estimated 28 per cent of the market; but businesses such as HMV, which actually has a distribution centre in Guernsey, may still be able to benefit from the arrangement.
If DVD and CD prices from the majors do rise, the independents feel this will restore a 'level playing field' - but some gloom-merchants argue that the main effect will just be to push more customers towards importing discs for themselves, or downloading pirated material
Online retailers under threat as Government clamps down on VAT ... Aug 17, 2009 ... Online retailers using a Channel Islands VAT loophole on the sale of ... reveal that Government now believes UK retailers may be “abusing” the rules. ... Islands grew to £620m last year, costing the Government £110m in lost tax. ... this is the government closing the door after the horse has bolted. ...