As many of our Web-savvy readers know, shopping online lets you avoid the pushy salesman in Currys and is invariably cheaper than trudging down to your local store only to find what you want isn't in stock anyway.
This is particularly true of games, CDs and DVDs, which are often several pounds cheaper online thanks to an EU tax relief called "Low Value Consignment Relief" (LVCR), among other things. It applies to goods that are imported from outside the EU up to the value of £18 and allows those goods to be exempt from VAT.
Now, the Guardian is reporting that the government may be attempting to crack down on retailers that base their online operations in the Channel Islands to then avoid millions of pounds in tax using this provision. Letters leaked from Treasury minister Stephen Timms shows that the government believes companies avoiding tax in this way "may be abusing rules."
Currently, nearby Crown dependencies the Channel Islands of Jersey and Guernsey are not part of the UK and as such are outside of the EU. They have become the base of many online retailers, such as play.com, TheHut.com, and high street retailer HMV, which moved its entire online operation to Guernsey in 2005.
A practice often used by retailers is to export goods from the UK to the Channel Islands and then post them back again to customers VAT free. Although consumers are able to make significant savings, the Treasury has estimated that VAT-free sales to the UK from the Channel Islands has created a £110m tax deficit, after sales grew to £620m last year.
HM Revenue and Customs is attempting to use a previous case involving the bank Halifax as a precedent to shut down the practice. In that case, the court established an "abuse of rights" principle that stopped the bank from using complex tax structures to gain an advantage on other banks.
Any ruling against the practice could have a significant impact on online retailers' bottom lines, and so consumers used to the low pricing available from online shopping, could face a rise in prices.