Business News Retail

HMV boss speaks out against LVCR

By | Published on Wednesday 15 February 2012


HMV is seemingly joining the anti-LVCR party, albeit now that all the food has been dished out, drinks poured and music played, and with only the most hardline party goers still in the house, most passed out of the floor. Oh well, perhaps HMV can help with the post-party mopping up.

Low Value Consignment Relief is the much previously reported tax arrangement which means that mail-order CD sellers based outside the European Union don’t need to charge VAT, giving them a 20% advantage on mainland sellers. As also previously reported, the tax relief was used on a grand commercial scale by mail-order firms based on the Channel Islands, where the logistics of shipping product en masse over from the UK and then posting it back to mainland Britain was relatively simple.

LCVR exists mainly to save the tax authorities from the hassle of having to administrate the VAT charged on low value goods sold into the UK from outside the EU, on the basis such sales were traditionally so low it wasn’t worth the cost and time involved.

However, once numerous mail-order operations started selling low-value goods, like CDs and DVDs, from the Channel Islands over the internet, the original logic of the tax relief system no longer stood up, and the continued use of relief by said operators on a mass scale breached European tax laws, because it distorted the British retail market.

After years of campaigning by smaller retailers, including some indie record sellers (campaigning met with lip service from the Channel Island authorities and UK government, and outright hostility from the Inland Revenue), Chancellor Of The Exchequer George Osborne finally announced last year that he was withdrawing the low value product tax relief from Channel Island-based companies. The VAT loophole will formally close in April.

As previously reported, many of those who operated mail-order businesses on the Channel Islands – including those who always insisted they were there because of the nice sea air and not the VAT breaks – are now looking for other bases outside the EU where it would be commercially viable to set up shop, the LVCR ban only applying to the Channel Islands in the short term.

Channel Islanders are not pleased with that turn of events, obviously, while some others have expressed concerns that, if every mail-order operator just moves to Switzerland (assuming the Swiss would have them), the problem of offshore CD sellers having such an advantage over mainland companies will only be temporarily addressed. Some of those who campaigned against LVCR on the Channel Islands, though, are hopeful a precedent has now been set that any future abuse of the tax relief system will be stopped much more quickly.

Anyway, to HMV. Former bosses at the high street CD seller adopted an ‘if you can’t beat them join them’ approach to the Channel Island VAT dodge, choosing to base their own mail-order operation offshore, rather than join the fight for the tax relief abuse to be stopped. Had HMV chosen the latter option, many campaigners believe, the VAT dodge enjoyed by Amazon, and The Hut et al would have been closed much sooner, reducing the negative impact many believe it had on the UK high street entertainment retail sector.

But now HMV boss Simon Fox, who’s been generally quiet on this issue since taking over at the retailer in 2006, has spoken out, confirming he is now one of those who fears the online retailers will all move en masse to Switzerland and so the VAT dodge party can begin anew.

Speaking to gaming industry magazine MCV, Fox said this week: “For many years we have said we would like to see a level playing field. Unfortunately, the [new] legislation closes down Low Value Consignment Relief only from the Channel Islands. It remains to be seen what our competitors will do, but undoubtedly there’ll be a temptation to go to Switzerland or wherever. It can’t be helpful to have your VAT rate as a determinant of where you put your warehouse. It’s a basic distortion to fair competition. The closing of LVCR rules is a good thing, but the way it has been implemented doesn’t necessarily solve anything”.

Expanding his tax concerns to the providers of digital content also, who may charge VAT, put who benefit from other tax breaks by basing themselves outside the UK, Fox added: “[The situation] is absolutely nuts. Just as it’s nuts for digital service providers – like iTunes and Amazon Kindle – to be located in low tax locations. Unfortunately all of the high growth digital markets are not delivering the government tax revenue. It is absolutely idiotic”.

Whether this means Fox will now ally himself formally with those in the independent retail sector who have been fighting LVCR abuse for years, and who want to ensure measures are taken to stop VAT dodging from other non-EU bases, remains to be seen.