Sainsbury sink into the mire

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From today’s Observer:

J Sainsbury and US retail giant Best Buy have launched VAT-dodging CD and DVD websites ahead of the busy Christmas trading rush in the hope of cashing in on the booming popularity of online sales.

The pair are the latest blue-chip retailers to set up complex and circuitous shipping arrangements for goods offered on their websites for less than £18. By dispatching orders from the Channel Islands direct to customers' homes on the UK mainland, these transactions do not attract VAT under an arcane EU tax relief directive.

The language is appropriate: this is VAT dodging, pure and simple. This is nothing but tax avoidance.

Of course Sainsbury are not alone. As the Observer also notes:

Other groups already pushing online CD, DVD and games sales through the Channel Islands to avoid VAT are Amazon, HMV, Tesco, Play.com, Asda and Woolworths.co.uk. All are able to offer goods at VAT-free prices substantially cheaper than prices to be found in high street stores.

But this does not excuse Sainsbury for sinking to this level.

And it also makes a mockery of claims from the Channel Islands that such new business is not allowed. Either those making those claims are not telling the whole truth or the regulation in these places is so full of loopholes that anyone can walk round it. And I will be candid: I have to wonder whether that is deliberate.

The impact is huge:

Two years ago the Treasury said lost VAT receipts from this trade were costing the taxpayer £110m a year and rising, though industry insiders suspect the figure is much larger. With VAT set to rise from 17.5% to 20% in the new year, the Channel Islands tax dodge is expected to balloon further.

I’ll come back to that in a moment.