Greens slam “triple whammy” tax avoidance by major UK companies

The Green Party today criticised a tax avoidance scheme used by major UK companies that deprives the UK exchequer of around £100 million per year.

Low Value Consignment Relief (LVCR) is an EU Directive that exempts small items from outside the EU from VAT. The aim is to speed up the transit of low value goods through the mail which might otherwise be delayed by customs and also reduce the cost of tax collection where it might not be practicable. Member states, if they decide to allow this relief, can set it between 10 Euros and 22 Euros but must ensure that it is applied in a way that does not cause competitive distortion or allow VAT abuse. The UK has set the limit at which the relief applies to its maximum level, which equates to £18 at the exchange rate agreed upon by the EU.

Although the purpose of the directive was to exempt small items from outside the EU from VAT, it appears that UK companies are using a loophole in the legislation to avoid paying VAT on items produced in the UK.

Tax researcher Richard Murphy has highlighted this issue on his blog ‘Tax Research UK‘. In an article entitled ‘Laws to get rid of #2: Low Value Consignment Relief‘he comments, “Most major retailers abuse the relief, either themselves or through independent fulfilment houses to whom their orders are re-directed. Those fulfilment houses ship goods from the UK, largely to order, and then post them back again. The export from the UK is VAT free. The return is VAT free and the UK High Street price including VAT is undermined, so undermining UK tax revenues by more than £100 million a year, undermining the UK High Street by forcing shop closures and undermining UK jobs as a result: a massive triple whammy.”

The blog also features a letter from VAT campaigner Richard Allen to the Chancellor calling for action to stop abuse of Low Value Consignment Relief from the Channel Islands (Link). Although the Channel Islands are Crown Dependencies they are not part of the EU, and so do not charge VAT on goods and services.

In a written answer to Janet Dean MP in June 2008 the then Financial Secretary to the Treasury Jane Kennedy stated that three quarters of the lost VAT due to LVCR “is attributable to imports from the Crown dependencies”.

Keith Ross, Green Party Assembly Candidate for South Wales West said, “I suppose most people would support the idea of cheap CDs and DVDs, until they realise that the price of schemes like this is the cuts we are now facing to our public services and benefits.

“This is blatant tax avoidance by some of the most recognisable names on our high streets. Not only is it a massive tax dodge, it’s also an unnecessary increase in carbon emissions as goods are transported backwards and forwards for financial advantage.

“As we face the most savage attack on our public services and benefits in living memory, this revelation only serves to underline how unnecessary the cuts really are. If the government were to give proper attention to clamping down on tax avoidance and tax evasion in the UK, estimated to cost the economy around £120 billion each year, then there would be no need for cuts at all.

“Earlier this week we heard that the UK’s most senior civil servant, the Cabinet Secretary, intends to call on a group of leading businessmen to advise on how to make thousands of job cuts in the public sector. Its likely that many of these will be from companies taking advantage of Low Value Consignment Relief.

“It would be better for the country if they could apply their considerable acumen to advising the government how best to avoid job cuts, rather than how to further increase the misery of the less well off. After all, if people are forced out of paid work and onto benefits, how are they going to be able to afford even the lowest priced CDs and DVDs!”

 

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