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UK government seeks EU advice on closing VAT loophole

By | Published on Wednesday 13 April 2011

European Union

Talking of the European Union, word has it that reps from the UK government have been talking to EU tax officials about how to go about closing – or, rather narrowing – the much previously reported tax loophole that means mail-order websites based in the Channel Islands don’t have to charge VAT on anything under £18, including, notably, CDs.

As previously reported – after years of campaigning by smaller independent retailers, who argue that so called Low Value Consignment Relief gives an unfair advantage to bigger operations who can afford a Channel Islands base – Chancellor George Osborne recently pledged to take action against the loophole.

Although his initial pledge to reduce the cut off for the relief to £15 and to review other options seemed somewhat non-committal, we hear Osborne’s officials are now consulting their counterparts in Brussels on what can and can’t be done regarding the tax relief, which has its origins in European tax law.

As previously reported, those who oppose the loophole had already submitted a complaint to EU tax authorities claiming the UK had failed in its duty to ensure tax relief programmes do not distort the market. Previously the UK’s Inland Revenue had defended its record in this area, but it seems that, presumably at George’s command, officials are now admitting the VAT relief scheme has got out of hand and needs reining in.

It is thought the government will, in due course, announce a number of products that will not be eligible for the relief, and it is believed that list could well include CDs and DVDs, which would in essence bring to an end the music side of this story.

We’ll let you know when we hear more.