For a long time now, a large proportion of the DVDs and CDs people buy online in the UK have come via the Channel Islands. This used to be the domain of smaller companies setting up there so they could take advantage of the facts that:
- The islands are considered outside the EU for VAT purposes
- Personal imports to the UK were given a VAT exemption up to £18 (recently reduced to £15)
Having seen other people undercut them, bigger suppliers also set up shop in the Channel Islands – either openly or slightly sneakily (Amazon tell you that some items will be supplied by their “Preferred Merchant”, a Channel Islands based company that appears to be no more than an extension of Amazon).
This has resulted in lower prices for buyers, more profits for the suppliers, and a moderate amount of tax revenue being lost.
So, the government have decided to stop it, and from next year this tax “loophole” will be closed. Looks like a fairly major loss to the economies of the islands, and higher prices for us.
How much impact this will have on actual retail prices remains to be seen – but even Amazon and Tesco will be reluctant to absorb the 20% UK VAT they’ll be obliged to collect on these items in future.