Indigostarfish.com runs a mail order fulfilment business from Jersey. Of their activities they say:
You may also know the name Indigo Starfish from our long standing relationship with Amazon. Indigo Starfish is the preferred merchant for the supply, on Amazon, of CD's and DVD's. Whether you realise it or not - it is likely that the CD or DVD you ordered on the Amazon website came from Indigo Starfish.
That’s probably because Amazon can’t get a licence to ship CDs and DVDs VAT free out of Jersey because the UK has tried to get Jersey to stamp down on the trade because , given it costs the UK more than £100 million a year at least in tax lost it’s considered somewhat abusive. Indigostarfish has such a licence though — so problem solved for Amazon, and as it says on its site:
Indigostarfish.com is an independent Jersey-based merchant offering to supply goods to UK customers via the Amazon.co.uk website. Orders placed with Indigostarfish.com are subject to the Indigostarfish.com Terms & Conditions.
Note: Each item ordered from our Preferred Merchant, Indigostarfish.com, will be packed and dispatched separately. As items are charged for at the time of dispatch, orders for multiple items may result in multiple charges on your payment card within a short period of time. If we notify you that we are having difficulty processing payment for an order for multiple items from Indigostarfish.com, please contact your card provider as they may have blocked your card as a security precaution following multiple authorisation requests.
Import Duty and VAT
- Indigostarfish.com prices do not include VAT because: (a) the State of Jersey does not charge VAT on products purchased in Jersey; and (b) when products are imported into the UK, VAT is usually payable in the UK by the importer of record (the customer is considered the importer of record in respect of items purchased from Jersey). However, there are special tax and customs regulations that exempt personal imports of 'low value' goods (goods with a value below £18) from import VAT. You can find further information regarding the VAT exemption here. When ordering an item from Jersey, you are acting as the importer of record and must comply with all laws and regulations of the UK. To the extent your purchase does not qualify for the low-value exemption from import VAT, you may be liable for import VAT at the time of delivery.
- For more information about the VAT relief please read HM Customs and Excise guide to Shopping on the Internet.
All very convenient, eh? Legal, but pretty aggressive and highly artificial tax avoidance all the same, and I really don’t think anyone could dispute the fact.
I have, of course, written about this many terms before. But then I had the IndigoStarfish.com corporate social responsibility web site drawn to my attention. It’s ridiculous. Take these statements:
Corporate Social Responsibility
As a responsible retailer, we believe that the long-term future of the group is best served by respecting the interests of all our stakeholders: Customers, suppliers and the wider community. We look actively for opportunities to improve the environment and to contribute to the wellbeing of the communities in which we trade.
So putting all the competition on the UK mainland out of business using a VAT avoidance scheme is “respecting the interests of the wider community” and “contributing to the well being of the communities in which we trade”? I don’t think so.
Environment
We will take all reasonable steps to manage our operations so as to minimise our environmental impact and to promote good environmental practice. We will review regularly our business practices and performance to identify how we can improve our energy efficiency, minimise packaging and reduce water usage, waste disposal and air emissions.
What like sending CDs all the way to Jersey and then back again in individual jiffy bags to avoid VAT is respecting environment? Please pull the other one.
Relationships
We will conduct our business relationships with integrity and courtesy, and honour our trading commitments. Our aim is to build long-term relationships with our suppliers and provide support for small, local, specialist producers.
So seeking to undermine tax revenues in the state in which our customers live is acting with integrity? It’s legal, of course. But let’s not for a minute pretend legality is the same as integrity. And where in this statement is the obligation to build a good relationship with the stakeholder called the government considered? Nowhere that I can see.
Communities
We will build relationships with our customers, suppliers and the local communities we are part of by encouraging our Stakeholders to consider the needs of others and involve themselves in public service. We will obtain a wide range of views on our social and environmental policies and performance.
You mean avoiding VAT which funds public services helps communities? It’s an interesting logic.
You really do have to wonder who wrote this twaddle. Because to any objective observer who knows the basis on which this company trades that is what it seems to be. But is indigostarfish.com want to respond I’d be happy to publish anything they’d like to say, subject to my right to reply.
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Who set up the £18 limit? I presume it was HMRC? Hardly the fault of anyone in Jersey, or the consumer buying the item if this is the case.
Richard
“the UK has tried to get Jersey to stamp down on the trade”
I am right with you on stopping this abuse but I think your above sentence is as much twaddle as the stuff on IndigoStarfish or whatever they are called (which looks like it was simply copied from someone elses, probably American, website incidentally). To say that the UK has tried to get Jersey to stamp down on the trade might suit your anti offshore stance but the fact is that the UK could stop this OVERNIGHT by reducing the low value threshold to £7.99 or as you have suggested in the past putting on a charge to check the packages. It’s like complaining that strangers are coming into your house when all you have to do is shut the door. When UK leaned on Jersey to stop Tesco et al, they just moved their operation from Jersey to Switzerland. No. We are talking big numbers here and there is more to this than meets the eye. At some level, the UK is complicit and you would have to be credulous in the extreme to believe otherwise. Another mystery is how have the Channel Islands avoided paying “Pricing in Proportion” on their postage when the rest of us in mail order have had our costs doubled by it, and all of these packages are delivered in UK by Royal Mail? Subsidising that too are we?
@Greg
As ever, please excuse abuse
@woolley
I stand rightly accused!
Humble pie eaten
HMRC have made pathetic and deliberately short sighted attempts to appear to crack down on this trade without showing any willing to effect real change
How will that do?
Richard
Has anyone asked whether Indigostarfish have a real commercial presence in Jersey? Do they have people making commercial decisions or actually taking business risks on the Islands? Do they have property from which the CDs and DVDs are despatched from? Where were the commercial negotiations with their customers conducted? Jersey, the UK or elsewhere?
If they don’t then I fully agree that this is blatant avoidance and should be stopped. However, if they do have commercial substance then it could well be different and they are taking advantage of Jersey’s and the UK’s laws quite legitimately.
@Richard
No one disputes they ship goods from Jersey
But the sole reason to do so is to avoid tax
And that’s incompatible with their claims on CSR in my opinion
that was the point I was making
You’ll note I said – integrity and legality are not the same thing
The relief is an optional relief and is put in place by the UK Government. It was allowed to Jersey to “expedite the transit of perishable goods that were getting delayed in customs” (bulbs, plants etc) . If anyone would like to see the paperwork I have from HMRC that confirms this as true happy to show them. The relief has since been right royally abused by Jersey traders, although they are not entirely to blame as HMRC has done nothing to stop it, even though that have an obligation under EU law to do so. Richard Allen
@Richard
Real Commercial presence in Jersey is not relevant in this case. If the bulk of your customers are in the UK and you ship goods to Jersey to then ship them back to the UK why would you do that ? You’d only do it if you could make a tax saving. Otherwise you might as well operate in the UK. The only way this could operate legitimately is if goods were non EU products.
To both Richards, why haven’t HMRC cracked down harder? They are surely just as guilty in facilitating this “abuse”?
@ Richard Allen: Thanks for the explanation. Seems to me that it would be easy for HMRC to just give the VAT exception to perishable goods.
Its a long story. Basically its a combination of ignorance of what’s been going on and deference to the Channel Islands. Cracking down now would be highly unpopular politically and no politician wants to be seen to be apparently raising a tax (reimposing VAT on mail order). There is currently a complaint in against the UK Government at the European Union. If they decide what’s going on is an abuse, game over.
Richard,
You are wrong about one aspect of this, and you know that I would know.
Jersey does not want Amazon or any other UK owned business doing this: that is why Amazon won’t be given a licence. The reason is simple: it is labour intensive, the labour is poorly paid and as a result of 0/10, if the company itself is not owned by Jersey residents, it will pay no tax. So this is a total pain for Jersey, which is already overcrowded and does not need unskilled, badly paid work that brings in no tax. Which is why it told Tesco that it couldn’t come (but Guernsey takes a different view).
Play.com, which is owned by Jersey residents (or Healthspan in Guernsey) are different, as they do bring in tax.
As well as the comments above, isn’t there some issue concerning (racking memory here) magazines being circulated from an offshore island in Denmark that established within the EU that the relief wasn’t limited to perishable items?
Not at all true. The issue of who owns the company and who is employed is of no bearing on this (i.e the argument that Play.com is legitimate and that the licence scheme has any effect). The fact is that The Channel Islands are of no use to the fulfilment industry other than a tax avoidance arrangement. They are geographically inconvenient. Most of the customers are on the UK mainland and it makes no sense to be there and operate from there unless goods are manufactured on the Islands. Even the Jersey Government admits that LVCR is the main reason a fulfilment industry is based on the Islands (Jersey Scrutiny Committee and Oxera Report 2005) As for the licence scheme if 10 retailers on the Island supply 20 customers in the UK with an Elton John CD then if you cut the number of retailers to 5 they still supply the 20 customers on the UK mainland with the Elton John CD. Its the volume of goods and the circular export and reimport that is the abuse of VAT not the pedigree of the fulfilment company. This is a classic example of economists and tax authorities buried in theory without actually looking at the blindingly obvious. Of course its an abuse, of course a fulfilment industry in Jersey makes no sense…. Its ludicrous that its grown to this size.
@ Richard Allen, so this is not really tax abuse that can be blamed at Jersey’s door! Why should Jersey take the lead in stopping UK tax abuse when the UK politicians are too gutless to do the job themselves!?!?
Richard,
My point was simply that the States of Jersey do not want non-Jersey owned fuflfilment companies because they bring nothing to the Island: no tax, no skilled work etc. I did not say that Play was legitimate, but from a Jersey perspective its owners pay a lot of income tax, so the States are more relaxed about its presence.
From a UK perspective or from a “legitimacy perspective” of course the ownership of the Jersey entity makes no difference, but that isn’t the point I was making.
Anyway, this issue will go away as everythign will be streamed digitally in a couple of years time. How VAT works then will be fun to discover.
Yes exactly…the UK Government is to blame for allowing it to happen, I’m not about to start flag waving. But I hope the residents of the Islands look at what their politicians have been doing. Is it sensible to base an entire industry on this ? I spoke to a Guernsey politician once who thought that allowing this industry to grow was a major mistake. He had made his views known but was shouted down by those eager to cash in.
Look forward to it. In the meantime we’ll be suing HMRC for negligence.
Yes Denmark did what EU law obligates them to do and applied for a derogation and stopped the abuse of LVCR via the Alland Islands. A derogation is the complex way of dealing with it. There are a number of other actions HMRC could take including using the Halifax judgement against companies as this abuse is clearly an activity that is only taking place for the avoidance of a tax (and no other purpose). Why the UK Government has done nothing remains a mystery but it appears to be helping the Channel Islands avoid VAT which is frankly, bizarre.
Richard Allan
“Why the UK Government has done nothing remains a mystery but it appears to be helping the Channel Islands avoid VAT which is frankly, bizarre.”
As I said above, this is the crux. I have lived long enough and become cynical enough to observe that when it comes to government policy the mysterious and the bizarre usually come down to pandering to vested interests. Any alternative reason is not credible. They really cannot be that incompetent can they? It is interesting that HMG has clamped down on Isle of Man VAT which was supporting the Isle of Man but has not clamped down on the far larger CI LVCR abuse which benefits big business. When anyone raises the matter they point the finger at Jersey and Guernsey as if the UK is totally impotent. It is THEIR problem and it brings VAT into disrepute totally distorting the market. Who could blame any small trader for citing the stuation as justification for VAT evasion?
@woolley
I have it on good authority that The UK Government is holding some money that should go back to Jersey (something to do with recent changes re the Financial Industry) and it could be that they are turning a blind eye to this as it generates income for the Island, and too losses would be too much in one go. I have it on good authority from the same person that Gordon Brown threatened to cut the phone lines to the Islands over a tax avoidance issue. I’m not a fan of GB or his social engineering politics but he gets a plus point for that one if its true.
Well yes. Bully for him, but it doesn’t help us or alleviate the unfairness to traders trying to compete legally with these imports. I could well believe your source about HMG turning a blind eye and I think it goes a lot further than that. As an observer of Manx politics and the relationship with the UK for many years, I am of the firm opinion that all of these things are stitched up between HMG and the island governments on behalf of the people who really own the country and it suits all sides in a much wider sense. For instance, HMG would rather have the tax havens at its side and under its control (yes they ARE despite what both sides will protest to the contrary), feeding the city of London machine, looking after the interests of the powerful and giving them big tax breaks rather than have the capital clear off to the other side of the world. The Islands are simply the whores who get a living out of it and it’s better than eating spuds and herring. In real politic everyone’s at it. For instance, for all his anti tax evasion rhetoric, what has Obama done about Delaware? Not a lot from what I can tell.
@woolley
Crikey (as people used to say
That makes me look moderate!
Just for information, Healthspan in Guernsey is owned by a Guernsey resident with substantial Guernsey connections – he grew up and was educated in Guernsey. He returned to the island and set up a mail order business, as is his right. It is a large, bona fide, diversified business, whose activities go some way beyond fulfillment. The profits of the business would be taxable upon him in Guernsey and so Guernsey derives a significant benefit, so that business is very valuable to Guernsey. Likewise Specsavers, a very genuine Guernsey-owned business which was set up AFTER the owners moved to Guernsey to become worth hundreds of millions.
But those businesses are very different from the HMV/Tesco-type businesses, amongst others, which have grown here, the value of which to Guernsey is far less, and certainly relative to the reputational risks of encouraging such businesses. Personally I would prefer that such businesses were discouraged from operating in Guernsey.
Hmmmm. Considering you advocate big government and I don’t that is probably worrying for both of us! 🙂
@Rupert
If they are selling non UK products not such an issue however the unfair aspect of this remains to a degree.
Richard M and Woolley : Yes of course, the old boys club is certainly alive and well. Why wouldn’t it be ? I’m reminded of an obscure Radio 4 Comedy based on Lord Of The Rings called Hordes of The Things where the King says to a knight “So what would you propose I do” and the knight replies “Well I’d get rid of two those advisers for a start!”. The Kings advisers respond “Oh we’d advise very strongly against that” “Yes most unwise your majesty”
Mr Woolley. Can you add anything to the evidence paperwork on this ? You seem very annoyed by it…..
Richard Allen
I’m not sure that I agree with you. Are you saying that a geniune Guernsey business shouldn’t be allowed to buy stock from UK suppliers as part of its trade? Why on earth not? The key is that its a genuine Guernsey business, owned by a genuine Guernsey resident who happens to want to live in Guernsey and run his business from Guernsey, where he was educated and grew up. Its not a sham business. By your logic, Specsavers, which employs circa 500 staff in Guernsey, providing extensive administration and joint venture franchising services to stores all over the world, including but not limited to the UK, would not be allowed to buy frames and lenses from UK suppliers. Why on earth not?
@Rupert
Of course you can do that. But you don’t get the VAT relief if the goods are sent to Jersey and shipped back into the EU. If they are made in Jersey fine. It is illegal under EU VAT law to operate a business in a location and avoid VAT if the sole reason for being in that location is to avoid VAT. If Spec Savers are in Jersey for reasons other than avoiding VAT that’s legit. Its not my logic by the way. Its the Advocate General of the EU. People forget VAT is an EU tax not a UK tax.
@Rupert
Also LVCR isn’t the God given right of every non EU citizen. Its a relief allowed to goods on import to the importer of the goods and is allowed by the member state subject to certain rules that the member state has to abide by (the main one being it must not be abused) Essentially if you are saying why should any customers of any business in Guernsey have to pay VAT on import the answer is simple. Guernsey is outside the EU. Just like the UK is outside North America .
“he grew up and was educated in Guernsey. He returned to the island and set up a mail order business, as is his right” Yes and as is our right as EU members we impose tax on imports particularly if they are attempting to abuse the system. Sorry but you cannot possibly justify VAT free goods being sold in our market place when we all pay VAT .
Richard Allen
In neither the case of Healthspan nor Specsavers is VAT avoidance the primary motive. Indeed, I doubt if Specsavers buy or sell much which is under the LVCR limit of £18. These are genuine businesses with the head office, infrastructure, management and control, controlling shareholders etc all in Guernsey (not Jersey).
We don’t “need to justify VAT-free goods being sold into [your] marketplace when [you] all [pay] VAT”. That’s what the LVCR provides and so be it. The UK can change that at any time. I’m not condoning one iota the operation of the businesses who are only in the islands for VAT avoidance purposes. I’m drawing the distinction though between those that are, and those who are here for other reasons and who are very likely to still be here even if the LVCR was scrapped.
If they can show its not all about avoiding VAT on sales to UK customers that’s completely reasonable, and I agree that no trader can be blamed for taking advantage of the lax policing of LVCR by HMRC. I appreciate the fact that we can discuss this properly and avoid the usual flag waving mud slinging I’ve seen this discussion develop into on other forums. I hope there’s a clean sweep at the Treasury but I fear the same people will be pulling the strings on this one. Lets hope the EU sort this mess out.