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.
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HMRC claim they are stopping abuse. They obviously use a different dictionary to mine. So its a VAT increase for poor John Doe/Joe Bloggs and No VAT for Sainsbury. Brilliant. Somebody ‘in Government’ is in for a big fall when this lot unravels.
[…] for example the blog I have just posted about the VAT abuse that the Channel Islands of Jersey and Guernsey promote. When this loss to the […]
I think the abuse from companies trading from the channel islands is a much larger problem than the general population realise. With e-commerce competing with every high street within the UK, ignorance to resolve this problem is drastically effecting the economy on a large scale. Not only are the govt losing millions in tax revenue, but it prevents a barrier for entrepreneurship. New small businesses can’t compete with a 20% difference in price to stores just a click away from the same customer pool. Even the larger businesses with deep pockets have had to set up on the channel islands such as Sainsbury’s to compete, which will only broaden the gap. Unless this problem is addressed sooner rather than later, small retailers based in mainland UK will close at an alarming rate, or new businesses will seek to open from abroad. Either way the UK will continue to lose tax revenue and as a result increase taxes will occur elsewhere as well as further cuts. I hope that something is done about this sooner rather than later.
Don’t worry. Jersey soon to follow the trend in CDs, which will go the way of cassettes, VHS and 8-track. In 3 years, hardly anyone will be buying a CD. All my music is now downloaded onto my smartphone.
[…] for example the blog I have just posted about the VAT abuse that the Channel Islands of Jersey and Guernsey promote. When this loss to the […]
Please tell us: which Channel Island jurisdiction are the retailers moving to?
Because if it’s all going to Guernsey, it indicates that what I posted (about the Jersey RegUnds policy) holds true, and shouting at Jersey is not (in this case) justified.
But if it is Jersey, our Economic Development Minister, Alan McLean, should be considering his position.
James in Jersey
@James
Guernsey may be worse right now, I agree
[…] more evidence that the Channel Islands’ VAT abuse is having serious impact on UK small business has turned up on this blog: I think the abuse from companies trading from the channel islands is a much larger problem than […]
@Mark
a) CD and DVD sales are growing
b) This is about vastly more than these products
The issue will not be going away
[…] Gove’s plan and instead ponder the alternatives he might have considered. Take for example the blog I have just posted about the VAT abuse that the Channel Islands of Jersey and Guernsey promote. When this loss to the […]
@James If you think the Jersey Regulations have any effect you must be easily led. I know people trading in Jersey Licences…
HOW TO SET UP OFFSHORE
Further Reading:
http://www.rkgconsulting.com/e-commerceinternet-retail/vat-issues/e-tailers-vat-efficient-fulfilment/
There is an association between ‘RKG Consulting’, ‘PFS Fulfillment’ (Jersey/Guernsey) and also ‘Basel Trust’ and ‘Foreshore’
Essentially to cover all bases:
1.) RKG Consulting provides a Tax avoidance strategy
2.) Basel Trust (or another Trust company) would incorporate a Jersey Company, obtain a license to trade, register for VAT-prepayment and provide Directors located in the juristriction of either Jersey, Guernsey or Switzerland, so that control is seen as coming from the Islands.
3.) PFS (or another fulfillment company) will store goods and pick/pack and ship them upon instruction, usually from a director of the UK company
4.) Foreshore (or another webhost in one of the juristrictions) will provide web hosting, so that the order is actually placed on servers located outside of the EU. There was actually an article on either the RKG or Foreshore site in the past which explained how the hosting of a server which accepted orders offshore would add further substance.
The Foreshore site even highlights the tax/vat benefits of Jersey: http://www.foreshore.net/jersey
Exactly. Its that easy …if you have the money that is. UK Small/developing internet businesses or ‘shop keepers’ as I have seen them referred to in certain Jersey Govt. documents, don’t stand a chance.