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Leah Ferguson reports
Channel Television can reveal that Jersey's fulfilment industry have been warned that Low Value Consignment Relief could be reduced or even scrapped.
LVCR is a tax loophole by which UK consumers can buy goods from the islands and not pay VAT.
We have learnt that at a private meeting, Jersey's Economic Development Minister warned the island's companies to prepare for the worst.
And with almost 1500 islanders working in fulfilment, and both Jersey and Guernsey Post relying on the industry for survival, there are grave concerns for the future of the business.
LVCR was first introduced to boost the local flower industry.
It meant companies sending goods from the Channel Islands to the UK could avoid paying VAT.
Soon, online music retailers were reaping the benefits, and under-cutting UK competitors, causing Britain's Treasury Minister to wage war.
George Osbourne said during his 2011 Budget speech in March: "We're going to tackle the exploitation of low value consignment relief that has left our high street music stores fighting a losing battle with warehouses in the Channel Islands."
The retailer's EU customers do not have to pay VAT on products that are less than £18 pounds. In a month that threshold is being cut to £15 pounds.
And with LVCR being reviewed in next year's budget, there are fears it could be scrapped altogether.
Industry insiders were gathered by Jersey's Economic Development Minister, who gave them an update on the situation. He said it is possible LVCR could be further reduced. But he did say no official word has come from the UK Treasury.
In Guernsey, fulfilment companies were also told of a possible reduction. The Channel islands are waiting for the UK's pre-budget statement in December.
Jersey Post was at that meeting. It relies heavily on the fulfilment industry - over half of all the items handled here are produced by that industry.
The end of LVCR could have a devastating effect on business.
Jersey Post's Chief Executive, Kevin Keen: "There was no official confirmation of the situation but the possibility was that the change in LVCR from £18 to £15 would not be enough to satisfy the UK authorities and there was a possibility it could go down much further to that, possibly even to zero. Clearly it was a very serious meeting for the people that are in the industry, they all work hard and they employ a lot of people and there are a lot of families and businesses that depend on the industry, so it was a very worrying meeting."
With hundreds of people employed in or linked to the industry, businesses are bracing themselves for the worst.
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Posted By: dave/stclements on 16-Oct-2011
bit like been called to the headmasters office for the cane.
were forelocks being tugged on the way in , and fidgitting with the cap.
when will our politians stand up for us.
the dog next door can play roll over and play dead too
Posted By: David Rotherham, Trinity on 16-Oct-2011
Surely the founders of the industry only expected it to last until someone noticed what was happening. Nobody can claim a moral right to avoid paying the tax due on anything, and it is hard to imagine a case for why they should, just because their purchases were shipped via the Channel Islands, instead of directly. There is no defence of it. They spotted their opportunity and took it while it was there, and that is that. Very few permanent local residents work in the industry, anyway, so it is not as big a disaster as it could have been.
Posted By: Sam on 13-Oct-2011
Its not only the fulfillment industry. I run an online business selling items mainly to the UK. This will kill my business and I depend on this income having been made redundant a few years ago. I know of many sellers in the islands who rely on this income and this will ruin us.
Posted By: D on 13-Oct-2011
It was only a matter of time before the government did something about this. I think if there is a "loophole" then it has nothing to do with greed or ethics, it's business.
There is no doubt that the rate will drop to zero and i feel it has everything to do with the governments "image" rather than what it actually achieves.
The person below who commented on play.com, did you do your homework? The business got sold for $25. 2 years ago the business would of been worth 10 times that. I think the selling price speaks for itself with regards to the whole situation.
The only way that Jersey will be able to compete with the UK is if the postage price matches that of the UK, which i really doubt Jersey Post will be able to do.
Hard times for fulfillment.
Posted By: Tony on 12-Oct-2011
Reply to not concerned
You must remember that Jersey Post do account for VAT to HMRC but this is only for items over £18. In my opinion probably less than 10% of all packages despatched by fullfilment companies.
As for collecting tax the UK could do this easily, by not releasing packages until the receipient has completed an on line delaration. Any costs will be greatly exceeded by the benefits.
Posted By: Tony on 12-Oct-2011
I'm afraid the UK are closing down these tax loopholes and I bet there is a lot more to come. When we diversified into this new industry the key people knew that we were only doing this on the strenghth of a tax loophole. I don't think we can be proud of what we have done, and let's face it the majority of islanders did not understand LVCF - but they do now and many feel assamed as why should we make make money at the expense of other countries.
More bad new to follow judging by recent attacks on tax havens. The consequences could be very serious indeed.r
Posted By: Harry st Saviour on 12-Oct-2011
certain parallels with the reciprocal health agreement - Jersey got greediy.... took advantage to the extent that they bit the hand that was feeding them.... another lesson in greed and avarice
Posted By: dave st/clements on 12-Oct-2011
if this happens, unemployment will hit 2500. no?
Posted By: Not Concerned on 12-Oct-2011
What you UK people don't realise is that currently Jersey companies have a voluntary MOU (memorandum of understanding) scheme in place which Jersey Post collect the VAT for and on behalf of HMRC.
I cannot believe JerseyPost would still be willing to do this with the reduction of income they face, the burden will then fall upon the UK customs to employ more officers to intercept packages coming in.
Also, as per the EU LVCR Law it states that it would require a Co-decision by the Council of Europe and a ruling by European Parliament is required.
Time would be spent better by the UK government abolishing the billions lost to Tax dodges from within the City of London!!
Ultimately the UK consumer will face the bill as the business will move to other jurisdictions.
Posted By: Tobias on 12-Oct-2011
Seems that Play.com was sold at just the right time, smart move by Simon Perree et al.
Unfortunate for the purchasing Japanese company, seems that they did not do their homework thoroughly prior to forking out (throwing away?!) such a large amount of money.
Posted By: Henry on 12-Oct-2011
Ross, St. Helier you're absolutely spot on. I was involved in this operation some years ago and repeatedly warned politicians not to let the industry grow too much and raise its profile otherwise there would be a quite understandable reaction. Don't like saying "I told you so" but I will.
Contrary to what the CTV report says the relief was not "first introduced to boost the local flower industry". There is a provision under EU legislation for member states to introduce, should they so wish, a low value waiver purely to avoid the need for the not very cost-effective operation of collecting small amounts of money on imported parcels. It is unfortunate and short-sighted that the Channel Islands have pushed their luck.
Posted By: Tim, Bristol on 12-Oct-2011
This outrageous abuse cannot be stopped quickly enough. Too many thousands of people, jobs and businesses here in the UK have been destroyed as a result of tax avoidance - let alone the two other massive issues:
1) Hug huge lack of VAT coming into the UK economy - totalling many many millions of pounds
2) Rediculous environmental impact of shipping tons and tons of stock EVERY day to the channel islands and back to the UK, just to avoid paying VAT - I cannot believe we have all stood back and just accepted this for so long (just so we can get our CDs a bit cheaper??) it is a joke and one that all involved in should be ashamed of.
Posted By: Tax Payer on 12-Oct-2011
This is an 'industry' that should never have been allowed to be set up in Jersey. Low wage jobs, mainly taken by immigrants stuffing DVDs in envelopes in a non-green nonsense business.
The DVD side was dying out anyway as people now download everything online.
Still some people have made shedloads of money out of it, and taxpayers will end up paying more welfare to people who should not have been allowed into the island in the first place.
Posted By: heywood on 11-Oct-2011
You mention that there are hundreds of people employed in this industry, but 99.999% of these employees are from Eastern Europe, so the islands would not really have been able to support this industry without importing labour. To be honest, I do not have too much sympathy with this as you are now joining the real world of taxation that we all in here in the UK and have to survive in. You will argue that the freight to the Islands is crippling, well I suggest that if this reduction comes in, then the freight rates will suddenly reduce substantially. Market forces, I am afraid and if only everyone had not let the cartel of shippers take hold in the last 10 years, then you may have had a more competitive freighting arrangement!!
Posted By: ross, st. helier on 11-Oct-2011
Greed has brought us to this point. The UK could probably have continued to tolerate imported flowers, and even some additional merchandise that fell below previous LVCR thresholds, but the loophole has had the pants kicked off it and Jersey and Guernsey businesses, including the Post Offices in both islands, have gratuitously exploited the situation until the the UK exchequer has had enough and slapped them down. Unfortunately, the fulfillment industry is reaping exactly what it has sown. I have every sympathy with employees, but big business has throttled a goose that until now has laid a golden egg. It has been a lesson in crass shortsightedness by both business leaders and politicians. The Economic Development Minister is out of his depth. He is woefully ill equipped for the role.
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