The VAT Loophole web site has had a letter of support from Graham Jones who wrote the excellent and best selling book Last Shop Standing about the demise of the independent record retailer in the UK. It makes sobering reading.
As he says:
I have witnessed the misery this loophole has created. Family businesses, many who have been trading for years, are closing down, people are losing their homes, people are suffering nervous breakdowns, and in one case a customer of mine took his life so depressed was he about losing his businesses. Yet this should all have been avoided.
On so many occasions I have seen people come to the counter of a record shop, ask about a new CD — then telling the owner that they will order it off of Amazon or Play VAT free. Can you imagine how frustrating this is for the shop owners?
One of my customers had a man ask to see all the Fleetwood Mac CDs he had in stock. He had 8 different titles. The man took his mobile phone out and took a picture of each one. He then sent the pictures to his wife, telling her to order these CDs from Play.com as they are bound to be cheaper. The record shops just cannot compete in this unfair marketplace.
This is the human price of VAT abuse.
But it’s more than that. It’s about the destruction of competition, and jobs, and well being and society and High streets and communities.
Blame Jersey and Guernsey. Loud and clear.
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No. Blame the UK House Of Commons. They enacted these laws which shaft their own people. Point the finger at Cameron, Brown, Darling, Osborne, etc.
hold on, this works both ways.
I live in Jersey and I buy most things online from the UK, from kids clothes to electronics, toys to cookware. I do this because it is cheaper and there is more choice. Tax has nothing to do with it. Retail hasn’t come to terms with the internet and uses the VAT loophole as an excuse.
Also, the anecdote doesn’t ring true. Why would someone ask a shopkeeper to shop them some CDs and then photo them when if you go to Amazon it will list all of them for you anyway, together with cover illustrations? As a matter of fact, only top selling CDs are sold through Jersey: if you want an obscure back catalogue CD it comes from Amazon UK and VAT is charged. I’m not a Fleetwood Mac fan, but if you want to buy Tango in the Night from Amazon (for example), it comes from the UK.
Play is a Jersey company owned and formed by Jersey people but its range isn’t as big as Amazon’s (they are weak on my favourite Krautrock).
@James from Durham
well actually the alw was designed to help Jersey and Guernsey, not the UK
and Jersey and Guernsey have turned it on its head to shaft us
Here we go again, lets blame Jersey/Guernsey for people getting cheaper online deals now!
The reasons places like play.com can sell items so cheaply is simply because they have cut out the middle man. We buy from them all the time and the tax element is only a minor saving when we take away the other surcharges these traders add on. This is the world of e-commerce and I prefer it as it is and perhaps if record producers were also not taking such a big cut from recordings then P2P networks wouldn’t be thriving either. Do not forget what the mail service gains from this service as well.
@ Mad Foetus:
Retail CAN’T come to terms with the Internet with the price differentials available through the VAT dodge – for instance any current chart CD album is @ £15-£18 from HMV’s retail outlet on the IoM – The same CD @ £7 from Indigo Starfish (Amazon’s CI operation), and P+P-Free if you’re willing to wait a couple of days more. Incidentally, I have definitely had back-catalogue stuff from the CIs as well in the past…
@Jamie
Stop lying
It would be cheaper to do this on shore and not ship to / from Jesey but for the VAT
So you’re blatantly not telling the truth
The anecdote may be or may not be true. But many people will look around a real shop to see what things are really like and then go home and buy it cheaper on the internet. Gross freeloading and I really hate that kind of behaviour. if you want the service from a real shop you should accept the higher price arising from the overheads of giving you the service (even if that service is just the opportunity to actually see the product). This problem is not necessarily just a VAT problem.
Richard, the middle man is cut out. The shop rental, the shop assistant’s wages, the electricity, rates etc. Are you saying this makes no difference to the cost of a CD online or onshore? The VAT element cannot the ‘only’ factor for cheaper merchandise and even you can admit to that surely?
@Jamie
Oh, that’s the web
Nothing requires that to happen in Jersey / Guernsey though
That’s purely VAT – nothing else
We know that – books have no VAT and aren’t shipped top Jersey to be shipped back by the very same companies that do so for CDs etc
Try explaining that
@Richard Murphy
actually Jamie makes a valid point. Perhaps there might be a VAT advantage for the retailers, and perhaps that might be significant, but the business model for these internet based businesses is different. It would be interesting to see how their logistics work, but it is not obvious who has the cost advantage, particularly given that most of these things are now burned in volume and shipped, or delivered over the internet.
However think electronic based entertainment and the value of the amazon brand is obvious.
@alastair
answer the book point
Books are cheaper online as well irrespective of VAT on or off. I have bought plenty of books from Amazon.com in the USA because they are cheaper than WH Smith locally and with the exchange rate with the $ USA in the past its been even more advantages. Richard the VAT element is only part of the whole pricing picture. DVD’s are now unbelievably cheap with the middle man cut out and that also goes for PC games which go above the VAT minimum. Why you keep on tryng to soil Jersey and Guernsey one minute and say its a great place the next minute is a bit strange sometimes and this argument/debate with your VAT is again only part of the big picture.
Richard,
On the book point: are independent booksellers thriving on the high street? No.
The VAT dodge doesn’t help, but the internet would be cheaper and offer wider choice than a shop anyway, and for CDs and DVDs there isn’t much chance for a retailer to “add value”. If, in the end, you are willing to wait a few days to buy a CD or don’t wish to physically go into a shop, does the VAT make that much difference? It probably makes a difference to people considering which online retailer to buy from, but I suggest it makes no difference to the decision whether to buy online or from the high street.
@Jamie
None of that is disputed
But you utterly miss the point – Jersey and Guernsey only add cost – they do not save it
Only VAT makes the business locate there
Sop as ever you are simply denying the truth
Please don’t waste my time doing so again
@Richard Murphy
Books are printed where I wonder? Probably driven by the retailer who is buying. Bet the supermarkets have this one buttoned down for their discounted versions. In fact for the internet retailers I bet it works the same as for CDs. The ereaders are still maturing, but in 12 months time they will have had a significant impact on the printed market.
@alastair
Do you know anything about books, at all?
Or how many are published a year?
What you ahgve written is utterly nonsensical
Ditto MF, for the record – absolutely ignores pricing – which is why people are in the CI
I’d presume you people have no faith in markets from what you write – but that’s not true. You both just love tax abuse
Sickening
]
Richard,
I don’t think you’ve understood my point. I’m not fan of fulfilment, but I think CI based internet companies compete with UK based internet companies. They can sell a product at £8 that the competitor sells for £9 and the differential isn’t fair. I have no problem with that point of view.
But I don’t think the internet competes with the high street. The reality is that these days people either make an impulse purchase on the high street or buy online and compare prices online. What the VAT dodge does is advantage the CI business once the decision to shop online has been made.
“But you utterly miss the point – Jersey and Guernsey only add cost – they do not save it”
Perhaps you have missed the point: people regard tax as a cost. If you can reduce the tax they pay, buyers believe you have reduced the cost to them.
Large numbers of people have posted comments supporting tax abuse on here this afternoon which I have deleted
All contravened this blog’s moderation policy
All were based on fantasy
Only a bigot can think that the fulfilment industry is in the CI for any reason by VAT
That’s what this debate was about
And counter argument is useless – there is none
Oh nice one Richard. You say tax avoidance is now tax abuse, well sorry but it isn’t and you have just proven that if you ran the country it would be a right nanny state.
@Jamie
It is
HMRC think so for a start
And the IRS
and the ATO
they all accept compliant tax planning
But avoidance is pure abuse
the CI industry is pure abuse…
Why don’t people understand that a race to the bottom is self-defeating?
Thius kind of false ‘competition’ within a market can only be destructive. It’s just too obvious. It makes it very difficult to understand why there are such ardent supporters.
It’s an abuse of tax rules. The same way a benefit cheat uses flaws in the welfare state. But more expensive to the taxpayer. Especially in the long run.
Richard,
I’m no fan of the fulfilment industry. But the key point is that it is in the UKs power to stop it overnight.
And also, I don’t think it will make any difference to the high street. But unless/until it is stopped, we’ll never know.
Why when I order my ink cartridges from a Channel Island based internet provider do they send them in separate packets if that’s not VAT abuse Mad Foetus and Jamie?
The total value of my order is £32 but they pay separate and probably more expensive postage to send them to me in two separate packets. Why, beacuse as each is under £18 I don’t have to pay VAT if shipped separately, shipped in one pakcet I would have to pay the VAT due.
If that doesn’t highlight the abuse that it is I do’t know what does.
@Jamie I don’t know why but CI LVCR abuse apologists always go on about ‘shop keepers’ in the UK as if we all stand around behind counters wearing stripy aprons like something out of a museum. Here’s another section from that Graham Jones letter “In my book I cover many factors that have contributed to the decline in record stores but can categorically say that the silent killer of record shops is the abuse of Low value Consignment Relief (LVCR) by offshore based online retailers and the impact this abuse has had on UK Independent retails ability to compete on the internet. It’s often forgotten that many of the long established independent retailers had websites”
The point being that there were a number of established ‘brand’ independent internet retailers on the UK mainland who had evolved from shops. An example was Select-a-disc. Up until around 2005 they were all doing well until HMV went off shore and entered a VAT free price war with Play.com. What’s always conveniently ignored by CI LVCR abuse apologists is that the abuse of LVCR has killed off internet retailers on the mainland.These retailers had no problem competing with the likes of Amazon and HMV when the playing field was level. With a 17.5% handicap they were dead. Not only that but once you become larger you can start demanding bigger discounts and of course you are likely to become larger if you have a 17.5% head start. I ran a label distributed in the UK and had the bizarre situation of my own stuff coming back in VAT free undercutting my UK retail customers (and even my own mail order price!) . I couldn’t protect my UK retail customers from this by giving them a different price through my distributor as the likes of HMV also had UK retail outlets and you can’t sell your products at a different price to HMVs website. If anyone doesn’t think that is a market distortion they must be pretty stupid. The point of Graham’s letter was that the one thing that independent retail needed to do to survive was adapt onto the internet. The VAT loophole destroyed any chance of that happening particularly when the Jersey Government decided that only genuine Jersey companies could participate in this scam. And yes its a scam because anyone with any knowledge of LVCR legislation will know that its clearly not intended for what its currently being used for. I must disagree slightly with Richard in that not all tax avoidance is technically abuse (I’m sure he’s familiar with the term tax planning) but this certainly is abuse. We’ve had very high level legal advice from a very well known QC. You’d have to come up with some pretty smart explanations as to why it wasn’t. Hopefully that will happen soon…..I really think its only a matter of time. VAT abuse on this scale can’t go on like this. Its like watching the Titanic sink.
@mad foetus I have to agree…but the loophole has denied high street retailers the chance to go online.
Sorry but this is total rubbish. Play.com buy from the same distributors that UK retail buys from. They are cheaper because of the VAT OR if they buy a large quantity of product. Most large retailers are only cheaper on the mainstream products. They wouldn’t get the discounts on the back catalogue stuff.
@alastair Look at the Hut.coms profits . Take away the VAT advantage and they probably wouldn’t exist…
@Jamie Yes and then you can add back in the warehousing, the buyers, the website IT, the packaging , the postage, the packing staff, the telephone customer service, the advertising. Mail order isn’t that cost efficient!
@James from Durham Yes and I’d go further. Without shops and dedicated retailers promoting the products many of these VAT free websites in the early days would not have been able to steal the sales. At one point UK retail was doing all the promotion (until it went bust)and offshore just said ‘pssst..want it cheaper’
@alastair Please…we don’t all shop in supermarkets for books and music. Some of us have taste. Can’t recall the last time I saw The Velvet Undergrounds first album in Tesco’s Can you ?
Again this is not correct. Amazon is the only retailer that would not ship from Jersey on some products because Amazon operates a system that ships the item from the nearest warehouse that has it. If they could ship it from Jersey they would I’m sure. Also Graham Jones would certainly not be making this story up and I know of similar scenarios. Why can’t people accept the fact that 17.5% (20%) is a MASSIVE and tottally inexcusable advantage ? I mean 20% is an entire profit margin! Only an idiot would argue it has no effect. Come on!
@James from Durham Can’t disagree with that. You can add in The Treasury and HMRC as well. They advise the idiots.
Just to throw some balance into the debate, something very relevant is the fact that a high street record shop in Guernsey, Number 19, which has operated successfully for at least 35 years and used to compete directly against Woolworths and at one stage Boots locally for the sale of records, cassettes, and then CDs, is closing down because it cannot compete with the local HMV store.
Both Number 19 and HMV benefit from VAT-free prices, so VAT is clearly not a factor in that situation. Its a pretty clear indication that when the VAT playing field is level, the massive buying power of the likes of HMV is so great that the local independent just cannot compete. We see the same comparison with Sports Direct, who can sell items at a retail price which is lower than the wholesale cost price to the independent sports retailer. The national consolidated buying power of the huge retail chains (ditto Tesco v the corner shop) is massive, and in those examples there is no VAT arbitrage, just buying power arbitrage.
Obviously there is an advantage to a large offshore online retailer over the UK high street retailer, large or small, but the fact that even when VAT is eliminated from the equation even the offshore local retailer cannot compete, demonstrates more clearly the extent to which sheer size and buying power is a key factor.
Those who support this are one of three types
1) They own a company or are involved in a company making money out of it
2) They buy lots of CDs and DVDs VAT free and want to keep it that way
3) They believe all this rubbish about digital downloads replacing hard formats.
Universal just released this. Its virtually sold out in a few weeks (and has probably already gone up in value already) Digital download anyone ?
http://www.amazon.co.uk/Sandy-Denny-Box-Set/dp/B003N18PI2/ref=sr_1_1?ie=UTF8&qid=1291463409&sr=8-1
Rupert : “Just to throw some balance into the debate, something very relevant is the fact that a high street record shop in Guernsey, Number 19, which has operated successfully for at least 35 years and used to compete directly against Woolworths and at one stage Boots locally for the sale of records, cassettes, and then CDs, is closing down because it cannot compete with the local HMV store ”
Yes, shops compete with each other, some are good some are bad…they vary greatly. Most independent stores were/are specialists and they have been competing with chains with buying power since the 1960s. Its hardly surprising this particular shops gone bust though is it…HMV in Guernsey is probably the most well stocked HMV in the world! I also understand it occupies one of the biggest buildings on the Island. Its also right at the centre of HMV.coms supply chain so I suggest that the LVCR scam is EXACTLY why this shop has put the Guernsey retailer out of business! There are many independent shops in London near HMVs and they were all doing fine until this VAT issue popped up. Stop trying to argue 20% isn’t a big advantage. You make yourself look ridiculous.
@Arnald Sanity …….
@Rupert
Nonsense and you either know it or you are …
The argument is not about whether a big store is more efficient than a small one
Or whether digital will replace CDs
The only argument is about whether fulfilment is in the CI solely because of VAT
The rest is utterly irrelevant
Since the CI can offer no value added bar tax at all then it is clear you and all the others who seek to deny the truth by pretending this is not the sole issue under discussion have no argument to offer
The faxct is VAT is the only issue
This abuses UK VAT
Richard is right
You’re wrong
And I’m blocking vast numbers of comments because I really can’t spend my life dealing with idiots who seek to deny the glaringly obvious and whose view of life is based solely on their opportunity to abuse and nothing on justice, merit, or even fair competition
Bravo Richard Allen – the main reason I visit this blog is to see how the anti LVCR bandwagon is rolling. Labour, to its eternal shame did nothing for 13 years. So how about it coalition? We’re all in it together but some of us are in it up to our necks.
@woolley Please put your comments on the http://www.vatloophole.co.uk website where this issue is examined in detail. The website is run by a group of UK 20 retailers and growing (ONLINE as well as High Street before the ‘shop keeper’ beraters start whining) “We’re mad as hell and we’re not going to take this anymore! “
Richard (and Richard Allen)
Hold on a moment….I wasn’t defending the CI fulfilment industry at all! You’ve jumped to completely the wrong conclusion there, without even reading what I wrote. Its very obvious that fulfilment is in the CI solely because of VAT. How could anyone argue otherwise?
I’m merely pointing out that all the comments earlier had focused on the UK high street retailers being put out of business by the CI fulfilment houses because of the VAT advantage, and that a Guernsey retailer has also been effectively put out of business (there may be other reasons) by HMV in Guernsey, where crucially there is very obviously no VAT disadvantage, merely one of economy of scale and buying power. That shows surely that at least some part of the disadvantage suffered by the UK high street retailer must come from those same buying power disadvantages. I cannot see how any other conclusion can be reached. It means that the VAT arbitrage is a significant factor working against the UK high street retailer, and that economies of scale and buying power disadvantages are also working against the independent UK retailer (but obviously not the larger ones).
Also don’t forget that the Guernsey public don’t buy from the online HMV store – they buy from the physical HMV local store which appears to be a completely separate “normal” operation. The actual retail store is no bigger (and is probably smaller) than typical (non big city) HMV stores in the UK. If that store charged materially more than the HMV online store then surely Guernsey residents would buy from the latter instead?
I don’t particularly like the offshore fulfilment industry. The only grey area for me is that the UK specifically created it and could surely very easily close it if they were so minded. Its not at all obvious to me why they don’t, and I do understand your frustrations at why it hasn’t been closed.
I’m actually agreeing with you in principle – but merely trying to point out what is clearly an extra factor which should be recognised in evaluating the overall position. Strangely enough, I thought it was quite relevant and interesting to the debate.
Rupert : OK fair enough…apologies. However if you read the RAVAS site its not focussed on shops but independent retailers and that includes independent internet retail. The market distortion caused by LVCR is very specific. It is a barrier to market entry for onshore internet retail. Not one major independent record shop brand has successfully transferred to the internet. That’s not because they didn’t have websites. Its because they were pushed out by offshore. The odd UK indie internet retailer managed to go offshore but perversely they got chucked out when Jersey introduced the licence scheme. So not only can you not compete online you can’t join in either! (unless you want to spend a fortune on offshore trust structures…and why should you have to do that just to sell on the internet!)
some were thrown out when Jersey introduced the licences….
Rupert : “The only grey area for me is that the UK specifically created it and could surely very easily close it if they were so minded. Its not at all obvious to me why they don’t, and I do understand your frustrations at why it hasn’t been closed ” Here’s my theory. They should have stopped Play.com. They didn’t, many retailers complained (Tesco and Amazon and I’m guessing HMV) they didn’t do anything because some idiot in HMRC believed all the digital hype and didn’t think CDs would sell for much longer and then BOOM when they look at it again its huge and other products are involved and its key to the Jersey economy ). They are at a loss what to do because if they close it then they will almost certainly get grief from those who had to go offshore who complained. I think its basically a screw up and they are struggling with how to deal with it. The first attempt was to ask Jersey and Guernsey to deal with it, which didn’t help. If you don’t go for the cock up theory then I guess that leaves conspiracy….Any ideas ?
@Rupert Its also not difficult to get volume discounts from distribution but I agree if you sell mainstream you are pretty much dead in the water as the buying power of the big companies will beat you on the big stuff. But Indies never went near that stuff..not for years.
@Rupert
Hang on a minute….I agree you didn’t defend the industry but you also, like others, offered a completely irrelevant argument – that some High St retailers can’t compete with others
And you’re wrong on LVCR – it was introduced to benefit the CI who have abused it now
I accept the UK could end it – but don’t blame them for trying to help you – help you so gratuitously abused
@Richard Murphy Yes Richard …there are two sides to this coin… Not fixing it and full on abuse. The large companies that milked this were fully aware of what they were doing…just read the Jersey Govt. minutes…..
Richard Allen
Not sure about conspiracy theories. I don’t know much about the music retail industry but have no reason to question what you say. I do know that Guernsey has been questioning the basis on which Sainsburys are trying to operate from here though.
Richard Murphy
I haven’t “graciously abused” the situation at all. If I have then I’d love to know how. Why the barbed comment? I’m not defending the industry at all.
@Rupert Yes but what’s certain is that the UK’s policy of allowing Jersey and Guernsey to police this is a joke. Firstly it has no standing in EU law, secondly why would they and thirdly its clearly a total failure. See vatloophole.co.uk for what should be done
@Richard Allen
don’t know – don’t shop in tesco’s very often. But they (along with others) do sell a lot of books and CDs at heavily discounted prices.
@Richard Allen
its the “probably” thats the interesting bit. You would have to look at their business model to make such a claim, but you haven’t. Its only based on an opinion.