Among the recommendations made by the All-Party Parliamentary Small Shops Group to the government this week was that action be taken over the previously reported loophole that allows major retailers to avoid tax payments on mid-priced goods like CDs by basing their distribution operation in the Channel Islands. The Group was looking into a number of issues regarding the UK retail sector, and the issues faced by smaller retailers, but the so called 'Jersey VAT' loophole was one of the specific areas it focused on.
As previously reported, under European Union law retailers that operate outside the EU can sell products valued at under 22 euros to consumers in member states without charging VAT. The Channel Islands are not part of the EU, but are close enough to the UK, geographically and commercially, to make them a viable base for British distribution or mail order businesses. This has enabled the likes of Tesco, Amazon, Asda and Woolworths to sell major music releases at knock down rates - new release albums retail at just £8.50.
Although the Jersey government has taken some moves to limit new companies from capitalising on this loophole, some lobbying groups, in particular the Forum Of Private Business, has argued that both the Jersey and UK governments should act to stop the loophole being used by major players to give them an unfair advantage over independent companies in music and other retail sectors.