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High Court asked to keep 'cheap DVD' VAT loophole open

Judicial review begins this week

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The English High Court will tomorrow begin an investigation to determine whether online retailers should be allowed to avoid paying VAT on CDs, DVDs and Blu-ray Discs.

The judicial review, demanded by the Governments of Jersey and Guernsey, follows Chancellor George Osborne's decision to close the Low Value Consignment Relief (LVCR) loophole on 1 April 2012.

LVCR allowed online retailers shipping low-cost goods from the Channel Islands to avoid VAT. For the past decade, that has allowed the likes of Amazon, Play, Sendit and others to slash the prices of discs.

Disc buyers love it, but small retailers and, crucially, the Treasury hate it. The UK government's finance arm estimates that the loophole, a gap in the tax legislation governing the importation into the EU of goods costing less than £15, costs the Exchequer £110m a year.

Since Jersey and Guernsey aren't part of the EU, retailers have been able to ship low-cost goods there then sell them on to UK punters at VAT-free prices. The government of both territories are keen to maintain LVCR. They say closing the loophole is discriminatory and illegal.

Others argue that LVCR is an anachronism, intended to cover perishable goods sent by post. They argue that the loophole now does nothing but benefit big companies who can afford to ship goods to the Channel Islands and have them shipped out again to the UK.

That, they say, harms small, local retailers across the UK.

The judicial review takes place at the High Court of Justice Queen’s Bench Division Administrative Court concludes on Thursday. It could force the government to maintain LVCR. ®

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