VAT—Low Value Consignment Relief

David Gauke Excerpts

Wednesday 9th November 2011 Written Statements

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I am today announcing further reforms to the relief from import VAT known as Low Value Consignment Relief (LVCR). These reforms will make a positive contribution to the UK economy as well as contributing towards the fairness of the tax system and reducing the deficit.

In Budget 2011, the Chancellor of the Exchequer announced that the Government intended to take action to end the exploitation of LVCR, which in recent years has been used on an increasingly large scale to sell low value goods free of VAT to UK consumers, a purpose for which it was never intended. Most of this trade originates from, or is routed through, the Channel Islands.

Our objectives in reforming LVCR are twofold. First, to ensure that UK companies, especially small and medium-sized enterprises, can compete on a level playing field with companies with operations in the Channel Islands. Secondly, to protect tax revenue for the Exchequer while taking into account the costs of collecting small amounts of VAT.

As the first step towards reform of the way in which the UK applies the LVCR rules we legislated in Finance Act 2011 to reduce the LVCR value threshold, below which items are imported free of VAT, from £18 to £15. That change is being implemented from 1 November.

In taking that legislation through the House I made it clear that it was only the first step towards preventing the exploitation of LVCR.

I can announce today that, as from 1 April 2012, LVCR will no longer apply to goods supplied commercially, as part of a distance selling transaction, from the Channel Islands. Legislation to enact this change will be published in draft on 6 December, for inclusion in Finance Bill 2012.

This will mean that supplies from business in the Channel Islands bear the same VAT liability as supplies from VAT-registered businesses in the UK.

My decision to focus action on imports from the Channel Islands reflects:

By far the greatest volume of all international parcel post to the UK from outside the EU is estimated to originate in the Channel Islands, and much of it appears to be linked to the exploitation of LVCR.

Companies based in the Channel Islands can participate in HMRC’s “Import VAT Accounting Scheme”, which allows automatic collection of UK import VAT at source, thus avoiding delays at sorting offices and VAT collection surcharges. The ease of access of companies based in the Channel Islands to the UK consumer market is therefore very similar to that of domestic UK-based companies, in contrast to their non-EU counterparts.

This measure is expected to increase receipts by approximately £100 million per annum. The final costing will be subject to scrutiny by the Office for Budget Responsibility, and will be set out at the autumn statement 2011.

LVCR will continue to apply with the lower £15 threshold to commercial supplies from other non-EU jurisdictions. I have no current plans for further changes to this threshold but will be watching its operation carefully and will take further action if necessary.

The existing import reliefs for gifts (non-commercial consignments) sent from outside the EU, including from the Channel Islands, also remains unchanged.