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HMV is planning to put kiosks into some of its stores to allow customers to order out-of-stock CDs and DVDs which will be fulfilled VAT-free from the Channel Islands.

Many online and mail order music services including Tesco and Amazon.co.uk already have warehouses in Jersey and Guernsey because EU law allows items with a value of less than £18 to be imported to the UK mainland without paying VAT.

But small mail order businesses and specialist music stores vehemently object to this practice because it puts them at a disadvantage against big suppliers.

A spokesman for HMV told the Reg: "We already do this in a couple of stores and the idea is to extend it to 20 or 30 but only for out-of-stock items."

Richard Allen, a former music industry professional, said: "This has had a huge impact on catalogue music specialists. It needs challenging in court but struggling shop owners can't afford the legal fees."

Allen believes there is already a provision within the EU low value consignment relief which would allow the UK government to disallow it if it is being used for evasion. He pointed to the example of Denmark which acted quickly when magazine companies began offering VAT-free subscriptions by sending the magazines from offshore.

A Treasury spokesperson said: "It is important to maintain a balance between minimising the compliance costs on parcel operators and importers, safeguarding the interests of small companies, and protecting tax revenue by preventing unfair exploitation.

"As with all taxes the Government will continue to keep this issue under review, taking account of the wider public interest, and will take action if appropriate."

The European Union debated changing VAT regulations to make them more suitable for the age of the internet in 2006 but no agreement was reached. ®

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