Since 1998, companies have been setting up in Guernsey and Jersey with the sole intention of taking advantage of Low Value Consignment Relief (LVCR) and selling goods such as CDs, DVDs, vitamins and contact lenses 20 per cent cheaper than their mainland competitors.
Following a campaign led by Richard Allen, a UK businessman whose company went under due to the unfair advantage handed to Channel Island businesses, the EU ruled that the practice was abusive and instructed the UK government to take action.
David Gauke, Exchequer Secretary to the Treasury, said: ”These reforms will ensure that UK companies, especially small and medium-sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands.
"We are also protecting a significant amount of tax revenue. By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses.”