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The Forum of Private Business, which represents small and medium-sized businesses, is calling on the Treasury to close a loophole which allows ecommerce firms based in the Channel Islands to sell goods VAT-free to UK consumers.

It cites the example of Tesco.com, based in Jersey, which is selling the latest Oasis dirge for £8.07 rather than a recomended retail price of £15.99. Tesco can do this because it doesn't have to pay, or charge, VAT on goods despatched from the Channel Islands. Items worth less than £18 can be imported by individuals into the UK without paying VAT.

The FPB wants the Treasury to immediately lower this threshold from €22 to €10 (about £7). The association believes this would make the business unprofitable. But it is also calling on the Treasury to ask the EC for special dispensation to close the loophole completely.

John Healey, finance secretary at the Treasury, told a select committee in February that the loophole was already costing the country £80m a year and this was expected to rise to £200m in two years. CDs, DVDs and contact lenses are among the most popular items sold.

A Treasury spokesperson told the Reg: "Goods imported into the UK are generally chargeable with VAT. The rules in this area are complex and vary depending on the nature of the supply and the value of the supply and we keep the matter closely under review."

The FPB says Amazon, Asda, Boots, HMV and Woolies are also all selling goods from Jersey. FPB members say they cannot compete in a market where their distributors charge them more for a CD than they can buy it from Tesco's website.

The National Audit Office is preparing a report on the subject, called VAT on e-commerce, which will be published early next year, more details here. More from the FPB here.®

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