Government flies kite for VAT changes

The Coalition Government seems to be serious about changing VAT rules which currently allow big retailers to dispatch items via the Channel Islands in order to avoid paying the tax. The exemption was designed to protect Guernsey's flower growers but has been exploited by the likes of Tesco and Amazon who can undercut prices …

[Destroy All Monsters]

Always this newspeak

"The Treasury reckons it is losing about £130m in tax per year thanks to the loophole."

The Treasury reckons that it leaves about £130m in tax in the hand of consumers who are then free to decide what to do with it.

[Anonymous Coward]

Re: Always this newspeak

Hmmm, you seem to have missed the point of tax.

(Set by the people we voted in, I should remind you. Unless you're a Sun reader, in which case you voted for "Lower taxes, higher public spending" and deserve everything you get for failing GCSE maths.)

[Anonymous Coward]

Re: Always this newspeak

I suppose that, if one clings to the delusion that more tax = A Good Thing For All, then you could be right. There's a substantial slab of the country which doesn't accept the default Guardianista position that everyone's money belongs to bien pensant socialists to distribute how they please.

[Captain Underpants]

@AC 12:15

Yes, but that substantial slab of the country appears to have missed the entire point of taxation, doesn't it? In that taxation is used to pay for infrastructure for the common good. Given that the median gross annual income for full-time staff is £25900 (as per http://www.statistics.gov.uk/pdfdir/ashe1210.pdf), quite a lot of people can't afford to have everything on a privatised basis.

Of course, this all falls down a bit when tax-raised money gets spunked on paying hundreds of thousands of pounds to "retain" senior public sector staff who would otherwise be poached by the private sector (except the private sector has no interest in poaching them whatsoever because the professionalism and salary expectations of some of the staff in question are not in line with corporate expectations). Or when it gets spunked on over-priced and terminally-late government arms contracts. But on the other hand, we get the government we deserve, by and large...

[Anonymous Coward]

North of the border...

"....Set by the people we voted in, I should remind you"

Who's WE comrade. I never voted for them (neither did the rest of my country...)

[Anonymous Coward]

@North of the border

Neither did the majority of us south of the border either...

[Stuart 22]

Silly Boy!

Wrong. You don't understand how Tesco/Amazon etc price. Say a product has a price of £10. With VAT a retailer puts it on his website for £12. Without VAT a CI operator can undercut and sell it for £11.50. hy should he charge less? That is enough to get the consumer to buy from CI rather than a mainland supplier.

So Tesco/Amazon pocket an extra 15% or so a sale. You may be lucky to get 5%.

So basically it is Tesco/Amazon who get the most of the benefit/money. Not you. And then you have to pay the extra tax to make up for the tax shortfall or further run down schools, hospitals ...

So you lose big time too!

[N2]

Hmm

If they do, I just hope they retain the exemption for the small businesses

[Pete 2]

Alternative meaning

> The Treasury reckons it is losing about £130m in tax per year

The british public is benefiting by about £130m in reduced prices per year.

[Naughtyhorse]

another way of seeing it

tesco profit to the tune of £130m while pensioners go without replacement hips

[Pete 2]

pensioners

and who is "Tesco"? it's the shareholders. Who are the shareholders? Mostly pension funds.

[Anonymous Coward]

Re: pensioners

"and who is "Tesco"? it's the shareholders. Who are the shareholders? Mostly pension funds."

And so begins the race to the bottom in corporate/capitalist ethics as everyone points the finger at everyone else while a bunch of people somewhere are certainly getting richer and various other people just get screwed.

[Naughtyhorse]

FUNDS

by which you mean a yuppy with red braces in a 911??

kinda makes my point for me

[Anonymous Coward]

The wrong way of seeing it

You've missed the point of VAT, it's a tax which is passed directly to the consumer so it won't hurt or help Tesco profits if we are made to pay VAT on goods imported from the channel islands. We will just pay higher prices and Tesco will keep their existing profit margins.

[Anonymous Coward]

Taxed eh.

If the end price to the consumer increases, they will spend less - so its not £130m loss, nor will Tesco keep the same profits.

Anyway - we will expore other avenues that were abandoned by some when prices are reasonable. After all, there is no tax on BitTorrent.

[Anonymous Coward]

@AC 1248

It does assist Tesco (et al) if they avoid paying VAT for two reasons:

1) They don't have to discount the full VAT charge so they can make a bit more profit while still selling DVDs/CDs cheaper than other high street competitors.

2) They can drive any smaller companies, who don't have the ability to setup an operation in the channel islands, out of business. This means more business for Tesco et al.

Supermarket chains and Tesco in particular have serious form for moving into areas and forcing small shopkeepers out of business by loss leading and it's about time someone stopped it.

[Anonymous Coward]

The small companies were there first

It was small companies such as Play.com operating out of the Channel Islands who drew attention to the tax situation in the first place. It's the small businesses which are taking advantage of this situation who will go out of business if the VAT exception is revoked, not Tesco. Tesco will always have the buying power to muscle the small businesses out of the market whether they are based in the islands or not.

[Anonymous Coward]

Play.com

It may well have been play.com that started it, but AFAIK they are a channel islands based company supplying the UK. The big UK based dealers then stomped in and took over. This doesn't make what play.com were doing right, it just means that they caused less of a problem than Tesco, Amazon etc.

[Mad Mike]

Free Trade

Not quite sure if any politicians get this, but they keep banging on about free trade and yet complain all the time when people actually follow this maxim. DVD regioning is contrary to free trade as it prevents (theoretically) people from buying where they wish. If they really believe in free trade, you can't have exceptions or special taxes for imports of certain items etc.etc.

Customs (or Customs and Revenue as they should be called) will go mad over any removal of the £18 no-VAT rules. They could just do it from the Channel Islands, but that would be pointless as people would simply start importing from elsewhere. So, are they really suggesting Customs should inspect every single imported item, calculate the value and then charge VAT? Madness.

[Mike Shepherd]

Customs and Revenue / Revenue and Customs

HM Revenue and Customs won't "inspect every single imported item" any more than they inspect every purchase of a bar of chocolate from your corner shop. Nor do HMR&C "calculate the value and then charge VAT". VAT is administered by those who must charge it and by those who pay it but can reclaim it (as part of a legitimate business activity).

There is a registration and monitoring scheme for VAT, just as for PAYE. HMR&C investigate here and there to ensure compliance and imposes discouraging penalties where appropriate. If you try serious circumvention, you may be discovered and suffer criminal penalties.

[Mad Mike]

@Mike Shepherd.....errr, no

Mike; the whole point here is that the senders are not in this country!! So, Customs and Revenue can't ask them to charge it and send it in. They can say no and unless Customs stop them in the delivery mechanism, they get through with no VAT. If the senders get caught, Customs can't touch them. That's why when you get an import that requires VAT (or some other tax) to be paid, you're sent a nice letter, you send the money, then they send the item. The seller doesn't pay if abroad!!

The system you're referring to is for UK companies only.

[Daryl]

@Mad Mike.... not quite right

HMRC already have a voluntary system of pre-paid VAT for the retailers based there - that's why your Play.com purchases don't get held up in customs. All the government have to do is lower the LVCR threshold to £10 or remove it for everything except flowers/cream etc.

If the retailers don't like it and refuse to play ball, you let all their packages pile up at customs - they'd soon cough up to stop delays from driving their customers away.

[Michael Souris]

About time too

It is about time that LVCR was terminated; it no longer assists the cut flower trade, and only serves to rack up mileage on low value consumer goods sold in the UK.

The good denizens of the Channel Islands seem to want their cake and to eat it - lower Income Tax, no VAT on low value exports, and demands for zero VAT on imports.

Don't like it? Stop being a British dependency and join the French.

[Anonymous Coward]

ok

Many of us would be quite happy to not be a British dependency, we don't really get anything out of it other than interference!

[Anonymous Coward]

About time too

...but will they also be blocking the tax loopholes for their friends in big business?

[Just Thinking]

Eh?

What is so special about Guernsey flower growers? There are many thousands of small businesses and self employed tradesmen on the mainland who have to deal with the complexities of VAT.

Many of them are in low margin businesses, which hit the VAT turnover threshold before the owner is even making a living wage.

And if this law is intended to support small businesses in Guernsey, why no upper limit on turnover so that big businesses can't exploit it?

Sounds like an ill-conceived botch-up.

[Smudger 1]

The title is required, and must contain letters and/or digits.

"What is so special about Guernsey flower growers?"

They're in Guernsey, which is not in the UK, therefore VAT would have to be paid on import to the UK rather than being invoiced by the growers. It allows Guernsey flower growers to send their perishable produce to the UK on a daily basis in small consignments without customs clearance, which would otherwise make the transaction fail if there was any kind of bureauocratic delay.

[Jim Morrow]

tax break for guernsey flowers

if guernsey's flower growers want to export stuff to us without paying the taxes that apply to imports and the hassles of customs inspections, they should become part of the uk. fuck 'em.

i'm fed up with the channel islands bleeding us dry as a home for tax dodging and then expecting us to look after them for free.

remember too that lots of accounting scams - northern rock's off-balance-sheet activities for instance - were done through offshore devices in tax havens like the channel islands.

[Gordon 10]

How exactly wise one?

Perhaps sir would care to back up his bleeding us dry comment with some reasoned examples or heaven forbid some statistics.

No? Thought not. You sir are a commentard of the highest order.

[The BigYin]

No, no, NO!

Increasing the tax on big multi-nationals like Tesco will cause them to FLEE! Can you imagine the deserted wasteland the UK will be when Tesco et al leave due to the high taxes.

Why are you laughing?

This is the same reasoning they use for letting banks, telcos etc get away with only paying 1% tax (if that) so it must be true!

Without all those companies paying 1% (or less) and employing cleaners who pay 25%-or so, how will we afford schools?

Will no one think of the children?

[Anonymous Coward]

Yeah, but...

Banks don't have to be located in the UK, they can just operate here, doing their trading elsewhere. However a supermarket kind of has to run pretty much everything in the country it sells stuff in, even if you work in both UK and USA you still need to run pretty much everything in both countries due to the physical nature of selling stuff.

[Lamont Cranston]

Yeah, yeah,

all the established banks will upsticks and leave if they're asked to pay tax. Are you George Osbourn?

http://gu.com/p/2nf8n

[Anonymous Coward]

Err...

HSBC - Moved out of Hong Kong pretty damn sharpish when the Chinese were about to take over, that doesn't mean that they don't operate in Hong Kong. I'm not saying that it will happen, just that it can.

Supermarkets, however make their money directly from the main in the street, there is little location indipendant operation. Purchasing and IT could be carried out from a different country, so staff could be taxed there, but profits from a country are taxed in that country. Now compare with a bank, profits can be moved around, so that the investment operations can be run from a place where tax is lower tax, vast amounts of bank's money comes from investments.

[Anonymous Coward]

Oh noes - Mr Taxman not able to wet his beak?

HMRC get more like the Mafia every day. And if the CI refuses he's going to make them an offer they can't refuse.

[Lamont Cranston]

Tax is a protection racket?

Really? Should we do away with it, and let society be run on the goodwill of others? That'll end well, I'm sure.

[Anonymous Coward]

Move to another country

I was going to suggest the big guys would probably just move to another Country with lower VAT.

Until I looked at European VAT rates, and even with the hike to 20%, the UK isn't doing that badly (although it would be nice to go back to 15%)

Cypriot Standard Rate 15%

Luxembourg Standard Rate 15%

Maltese Standard Rate 18%

Spanish Standard Rate 18%

Dutch Standard Rate 19%

German Standard Rate 19

French Standard Rate 19.6%

UK Standard Rate 20%

Austrian Standard Rate 20%

Bulgarian Standard Rate 20%

Czech Standard Rate 20%

Estonian Standard Rate 20%

Italian Standard Rate 20%

Slovakian Standard Rate 20%

Slovenian Standard Rate 20%

Belgian Standard Rate 21%

Irish Standard Rate 21%

Lithuanian Standard Rate 21%

Latvian Standard Rate 22%

Finnish Standard Rate 23%

Greek Standard Rate 23%

Polish Standard Rate 23%

Portuguese Standard Rate 23%

Romanian Standard Rate 24%

Danish Standard Rate 25%

Hungarian Standard Rate 25%

Swedish Standard Rate 25%

Norwegian Standard Rate 25%

[Naughtyhorse]

Proof that....

We are absolutely dying on our arses re maths education for the 'ordinary' people

our vat goes from 17.5 ( a tenth plus half that plus half _that_ ) to 20% (a tenth twice) because the average transaction time would increase to the end of time if a typical salesperson had to calculate 21%... nevermind 19.6% sacre bleu! (a tenth, twice, minus a bit... minus the lot for cash?)

[Britt Johnston]

re: move

Wow, at this rate Europe will be up to 100% VAT within TWO YEARS!

[Trollslayer]

About time

This has been abused for too long.

Also, the comment about keeping the exemption for small companies is a good point.

[Anonymous Coward]

wow

Wow a whole 130 million! That will sure help people out.

Of course, the alternative is that 130 million pounds is spent on other things helping out the local corner shop instead of the sodding public sector. Almost 60% of our GDP goes to the government, and it's pretty clear that £££ doesn't equal performance.

[Elmer Phud]

yup - £130mil goes a long way

But it would be better if they dealt with the thieving bastards who ensure they don't pay a hell of a lot more in tax.

Usual stuff - we pay more, banks etc. pay less.

[Loyal Commenter]

Who it will help out?

Onshore small businesses who can't compete, not due to economies of scale but due to large companies effectively getting tax breaks. Anything that breaks the Tescos / Amazon, etc. monoculture and encourages competition can't be that bad.

[JaitcH]

What's wrong with making shippers (and purchasers) pay

This tax evasion racket is common in the U.S.A. where several states are running large deficits.

In Canada, outfits in Ontario have to remit taxes (federal and provincial) if they have offices in Ontario as well as their home province. Canada's Customs (whatever fancy name they have been given) get to slap any applicable duty + federal tax + provincial tax.

Now that the Feds are collecting taxes on behalf of more provinces, their income has risen.

Shouldn't be a problem to apply in the UK - give the UK customs another chance to screw up. Eligible people should then be able to claim a refund. Better to collect first and refund second.

No doubt Amazon will try calling the government's bluff - as it does in the U.S.A. Cameron should stare them down.

BTW, how difficult is it to discriminate between flowers and CD/DVD's when writing a tax code?

[Daryl]

Not just CDs & DVDs

It's not just record shops that have dropped like flies in the face of unfair competition from the big boys who can avoid charging VAT - the Hut Group recently bought IWOOT, and Play have been shipping everything they can from the Channel Islands for under £18 for years.

That's all fine for the consumer saving a few bob on his online shopping, but the 20% advantage makes competition impossible for mainland retailers, and if you work for one and it's your job going down the pan, it doesn't seem such a sweet deal.

[James Le Cuirot]

Play.com

Being from Jersey originally myself, I didn't like seeing the island being used in this way because it is unfair. Having said that, from what I understand, Play.com genuinely began in Jersey so I kinda let them off the hook.

[ukaudiophile]

Short sighted for media business

I suspect this will have a bad knock on effect on media sales in the UK.

Right now we're already paying high prices for media, which is driving scores of people into the hands of various torrent sites and download repositories. Now you're talking about taking away the mechanism by which UK citizens can legitimately purchase CD's and DVD's at lower prices, and whilst the VAT man loses £130 million, the media businesses gain from actual sales of media. Now, in the middle of rising prices and pay freezes in almost every market sector, you want to ramp up prices of media by 20%??? Are we trying to drive traffic into the hands of bittorrent sites? What the media business should do is fight against this with eveything they've got, because the losses to the media business could be double or triple the VAT losses.

I should mention, I don't like the media business, I just see where this is going!

[Red Bren]

It's the mark-up that's the problem

"Right now we're already paying high prices for media, which is driving scores of people into the hands of various torrent sites and download repositories."

Agreed. But it isn't the VAT that's doing this. Perhaps people would be less inclined to look for illegal alternatives if the media companies were a little less greedy? What's the mark-up on CDs, or on DRM crippled, low bit-rate MP3s?

"Now you're talking about taking away the mechanism by which UK citizens can legitimately purchase CD's and DVD's at lower prices, and whilst the VAT man loses £130 million, the media businesses gain from actual sales of media."

What the few UK audiophiles gain, the rest of us end up paying for as the government has to cover the shortfall through higher tax or reduced services. You also make it sound like a zero sum game which I doubt it is. Are the media companies really passing on the full VAT deduction or are they pocketing some of it? Effectively, we are all paying their tax for them.

[Loyal Commenter]

Really?

There are at least two 'record' shops in Bristol alone that sell cheap CDs and DVDs (typically CDs for about £3, DVDs for between £4 and £10). Granted, none of these tend to be new releases and you may be able to get them slightly cheaper on Amazon, but why not make Amazon play on level ground? Who you should be pointing the finger at are the large physical retailers who still try to charge £15 for a CD and £20 for a DVD. This is pure profit. No names mentioned, but one I can think of rhymes with bescos.

[Tron]

Government by arsehole.

If it was a perk for small firms, why didn't they define the 'small' bit in the legislation?

Tossers.

And if you want a diverse highstreet, they are going to have to link commercial council tax to profitability. Banks and chains pay more. Slightly mad but rather lovely independent shops that make your town centre a nice place even if they don't make much money, pay a lot less. The alternative is loads of boarded-up shops and a selection of charity shops.

[Daryl]

Excellent Idea

Couldn't agree more - if people want interesting, quirky town centres rather than pound shop and charity shop nirvana, tilt the costs of being there in favour of independents.

Not sure it should be linked to profitability - charity shops don't make a profit, do they? Perhaps to the number of stores in the shop chain - that would help prevent clone towns and protect regional variation.

[Loyal Commenter]

Charity shops not making a profit?

I'm pretty sure that if they didn't make a profit, the charities would close down the charity shops pretty quickly. After all, they get most of their goods for free, so after costs for clenaing and sorting must be making several thousand percent profit on them. As charities, this is probably tax free too.

Maybe it's about time to take a closer look at some of the country's larger charities which seem to be being run as businesses, making large profits and paying significant chunks of that money not on their stated good cause, but on salaries and advertising? I once heard an anecdotal story about how a cancer charity (no longer in existence but merged along with others into Cancer UK I believe) spent £500 a pop on breifcases for its executives. This was in the '80s when £500 would buy you a lot more lab based cancer research too. Such anecdotes should always be taken with a pinch of salt, granted, particularly if third-hand but as a cynic, I am inclined to believe that such things really do go on behind the scenes.

[GrumpyJoe]

I've seen odd things as well

in another (water-based) charity. Looked like MOST of the money went back into the fundraising pockets not into the main charity - one way around this - if you ARE donating, donate straight to the station near you - they get to keep it.

[John Sturdy]

A variant I thought of some time ago...

Set the tax rate of a company by its number of employees, thus encouraging the large ones to split.

(Projecting speculatively from studies such as the "Whitehall Study", my idea was that it might improve health by reducing the number of levels of hierarchy it's possible to be at the bottom of. However, I can't find any studies of health effects of the size of the employer.)

Also, smaller companies can't bribe officialdom as generously, so they'd at least have to form "lobbying" groups to do so, which increases the risk of the bribery being spotted... ah no, it looks like no-one cares about that in the EU anyway.

[John I'm only dancing]

Wow!!!

The Government will claw back a massive £130 million in VAT. A drop in the ocean when you place this against 4 per cent cut they are making to Corporation Tax. So exactly who is this Government serving?

[Anonymous Coward]

SHOCK: People pay 500M on CDs

Who would have thunk it. Don't they know that the Internet is awash with torrent sites?

Mine's the one with book "VAT Fraud for fun and profit" in the pocket.

[cs94njw]

Company Tax

Government, let us keep the VAT-free low prices, and you concentrate your time getting corporation tax from the banks and other companies. A higher return on investment of your time I feel.

[Andy Watt]

Agree - £130m? Chicken feed.

Our government would rather piss about with small tax loopholes they know they can shut than get tough with companies who strong arm the elected government of the land into giving them massive tax breaks.

Vodafone's V2 arm in Luxembourg has saved them a fortune by first purchasing Mannesman and then channeling profits: a long protracted legal battle with HMRC finally terminated when this government came in, took the HMRC lawyers off the case, installed someone who likes big business and settled for £1.2Bn of an estimated alleged £6Bn tax bill.

Also present in this lovely tale is a revolving door staffing system between Vodafone and the government (govt being advised on tax affairs by a former financial director of Vodafone) and George Osborne taking a trip to India to... Publicise vodafone.

£130m on small items sounds like they're trying to appear as if they can do something when in reality they're utterly powerless in the face of globalisation and companies who are now above the law of any nation state through their sheer financial punching power.

[Daryl]

Without Chicken Feed There Aint Any Chickens

So it's fine to let the hundreds of millions go walkies, because the ruling capitalist cabal are getting away with billions?

It doesn't have to be either/or - why not close all the loopholes?

A billion here, a billion there, soon we're talking about real money...

[system11]

Smaller items should stay VAT free

Smaller items should stay VAT free.

Even at their current level of inspection, customs leads to several days delay at busier times of the year - I doubt they can inspect every single thing.

I'm not sure why the 18 pound limit is even being discussed, that looks like a poorly justified cash grab attempt more than anything else if they really mean dropping it entirely. The correct solution to their current 'problem' is to start treating the channel islands as a non-EU place, subject to all the same rules as countries like America and Japan. CDs and so on will still sail through, which is fine given the pitiful amount of tax they'd actually retrieve - just as they do from any country, but larger orders that they still ship tax free from there would be subject to import duties.

I bet Parcelforce are hoping it gets abolished completely - they scam people for massive 'clearance fees' these days, often 5 times more than the actual VAT was on smaller items.

[Pahhh]

Dont care about the 130m but...

I dont care about the 130mil but what I do think is unfortunate is that its unfair to traditional high street retailers or , if they were any left, your local corner shop.

I've been using Play.com since it was called play247 for many more years than i can remember. So although I have benefitted from VAT discounted internet purchases, I find it sad that its at the cost of loosing dedicated shops. Of course, I'm as selfish as the next man and will continue to buy from somewhere that is cheaper until that legal loophole is closed.

[farizzle]

i just wanna say..

I like trucks!

[Daryl]

Not Very Green

Course, no one's mentioned the dubious environmental credentials of companies shipping tons of stuff most of the way to France, just to split it into individual packages (indeed often many small packages instead of one larger one to keep under the £18 threshold) and then send it all back again.

But then who cares about the planet when there's wonga to be made!

[Anonymous Coward]

Perhaps ....

... the UK uncut people should start picketing house of people buying CDs and DVDs from the channel islands!

[Jolyon Smith]

Reminds of the old maxim about "How to start a small business in the UK..."

... buy a big one, then wait.

The observation about this somehow obstructing independent CD and DVD sellers is bogus.

afaik Tesco joined the party only *after* OTHER independent online CD and DVD sellers (e.g. play.com) took advantage of this loophole to compete with much bigger companies in the UK who had advantages of economies of scale that a newly started, independent retailer couldn't otherwise compete with.

[despairing citizen]

And why close this loophole?

because it's easier than chasing the criminals doing £2bn+ of carousel fraud each year

[Equitas]

Idiots

So we get landed with totally-unreasonable customs clearance fees. Even more unreasonable when they've got to be paid to the utterly-incompetent Parcelfarce who cheerfully take the money but don't release the goods. And then you have to chase them up on telephone lines which are charged at a higher rate than normal landline calls.

DHL nowadays seem to deal with me as an account customer so at least I get the goods delivered, followed some time later by an invoice for the duty/VAT and clearance fees.

Meanwhile Hong Kong does a rather nice line in goods which are imported, through the mail, with a customs declaration sticker which denotes what may well be their real value but rather less than the price actually paid ..............

In any case, if this nonsense centres on CDs, then the lesson of what happened with vinyl ought to be a salutary lesson. At best, for me a CD is merely a temporary method of holding music until it is transferred to a server. Make it too difficult or expensive to get my music on CD and like many or most other people, I'll get it some other way.

[Anonymous Coward]

7 day shop

Oh F*ck! There goes the splendid 7 Day Shop!

(Happy customer, no connection)