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Low value consignment relief enables large firms operating in the Channel Islands to import into the UK individual goods with a value of £18 or less VAT free. The Forum of Private Business is supporting a number of firms who believe that this gives these firms an unfair advantage in markets such as the sale of DVDs, CDs, health foods and contact lenses; as a result, they can sell their products at much lower prices than their high street, or even online, competitors. The FPB believes that this practice is in direct breach of European Community law.
After nearly two years of campaigning, the FPB and a group of CD and DVD retailers have taken the fight directly to the Chancellor. In the letter sent to the Chancellor, the group presented a two-month deadline to take action. They have informed Mr Brown that should no action be taken, they may have no choice but to bring judicial review proceedings. The FPB is calling for the Chancellor to lower the threshold of low value consignment relief from £18 to £7, reducing significantly those goods that could be imported to the UK without VAT. The Government could then seek derogation from the European Commission to disapply the relief to imports from the Channel Islands (as Denmark did for importations from Norway and the Aland Islands) or disapply the relief specifically to those goods that are involved in the process.
The Chancellor has said, in both his 2006 Budget speech and the 2006 Pre-Budget Report, that he is continuing to monitor the situation. The PBR stated that the cost in lost revenue has increased to £90 million a year and that 'The Government will assess the case for reform to protect tax revenues and will take into account the wider public interest, by balancing the compliance costs on carriers and importers with the impact on UK based retailers'.
This problem was highlighted in Dolland and Aitchison v CCE (Case C-491/04) [2006] SWTI 531, reported in Update, Taxation, 16 March 2006, page 602.
