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ERA responds to LVCR announcement, predicts future problems

By | Published on Friday 11 November 2011


The Entertainment Retailers Association yesterday said that the government’s announcement earlier this week, that it would phase out the Channel Islands VAT-relief that has been utilised by the bigger players in mail-order CD selling for many years now, would only partially address the challenges facing those music retailers who did not benefit from the tax break, either because they are high street based or because they couldn’t afford offshore operations.

As much previously reported, the government this week confirmed it was axing so called Low Value Consignment Relief for imports from the Channel Islands from next April. LVCR has been used by many of the bigger mail-order companies in the last decade – since the internet-enabled explosion in mail-order shopping – meaning they don’t have to charge VAT on any goods that sell for under £18 (now £15), basically giving them a 20% advantage over mainland retailers.

Many independent retailers argue that the excessive use of LVCR by the likes of, HMV and the supermarkets is an abuse of the tax relief system, and has helped to force hundreds of indie retailers out of business, it forcing the price of CDs down across the board, and preventing independent retailers from being able to capitalise on the growth of mail-order.

ERA has been very hands off in the campaign to get LVCR stopped (or “totally useless” to quote some of those involved in said campaign), it being hindered by the fact half its members were utilising the VAT dodge. But it did comment yesterday, saying that while it welcomed any moves that ensured a more level playing field in the entertainment retail sector, it feared this week’s announcement would not actually result in fairer marketplace, because Channel Islands-based etailers would now relocate to other countries where LVCR will still be available on imports into the UK.

As previously reported, LVCR has only been axed for Channel Island imports, a point that has been much noted by the business community in Jersey and Guernsey. Those who oppose LVCR argue that if the tax relief is used to excess, so to distort the market, then it breaches European tax laws – but that is only the case where use is excessive, which is how the government justifies only targeting the Channel Islands this time round. Though, in theory, if all the offshore retailers did relocate on mass to, say, Switzerland, then the government would be forced to act on LVCR there too.

Explaining all these concerns, ERA Director General Kim Bayley told CMU yesterday: “We have always supported a level playing field for all retailers and recognise the concerns of smaller operators who have felt unable to compete with Channel Islands shipments. But the government’s latest proposals only partially address the issue”.

RAVAS, the body set up by independent retailers to campaign against LVCR, says it will keep the pressure up on government if and when abuse of the relief begins in other countries, but ERA says government should pre-empt future abuse, either by consulting colleagues in Brussels or, more radically, abolishing VAT on all cultural products.

Bayley continued: “It may be difficult in the current economic climate, but we believe the real solution would be for all cultural goods to be zero-rated for VAT like books. Failing that, the answer is for the government to address the issue in Brussels. In a globalised world it does not make sense to address an anomaly in the Channel Islands alone. Much of this business will simply be displaced elsewhere”.

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