Small business group refutes claim that scrapping VAT tax relief would ‘hit small firms hardest’
The Forum of Private Business is refuting a claim that closing the controversial Low Value Consignment Relief (LVCR) VAT loophole would hit small firms hardest. It believes that removing the tax avoidance scheme, which benefits many large companies by allowing them to move off-shore in order to pay no VAT on goods valued at up to £18, is long overdue and could stimulate a resurgence of small high street traders.
Ending the competitive distortion created by LVCR abuse is one priority of the Forum’s new Get Britain Trading campaign, a central pillar of which calls for a simple and proportionate tax system in addition to measures to boost small firms’ cash flow, create employment and improve skills and provide opportunities for growth.
The campaign underpins the Forum’s 2011 Budget submission, in which the business support organisation is lobbying the Government to close the Channel Islands VAT loophole to prevent further harm to Britain’s high street shops and small, private online retailers.
Following the Forum’s campaigning and recent intervention by the Conservative peer Lord Lucas, the Treasury Minister Lord Sassoon announced that the VAT loophole would be addressed in the upcoming Budget.
However, in an article in the Daily Telegraph, Tesco and Sainsbury’s defended the loophole because it keeps consumer costs lower. In addition, the accountancy company Grant Thornton argued that LVCR ‘plays an important role in reducing red tape for small traders’.
It is believed LVCR, which was introduced almost 30 years ago and is a legitimate tax break but prevents a large range of smaller retailers, unable to create distribution centres off-shore, from competing on price, was originally designed as an administrative relief to prevent perishable goods from spoiling in Channel Islands customs warehouses.
However, under an EU directive it must not be used if it leads to tax abuse or distorts competition. The Forum is arguing that it does both, and very clearly damages smaller retailers as opposed to creating benefits for them.
“The very notion that this Channel Islands VAT loophole benefits small businesses is completely wrong,” said the Forum’s head of campaigns Jane Bennett. “The story we have been told over the past 30 years is vastly different and is backed by evidence – the abuse of Low Value Consignment Relief has been a major factor in the rapid decline in small high street shops, as well as private online retailers.
“The Government simply must act in the upcoming Budget to close this unfair, anti competitive VAT avoidance loophole.”