Questions over cost of 'VAT loophole'

Questions are due to be raised in the UK Parliament over the so-called loophole being used by Channel Island-based companies to sell items tax free.

Under the current laws, mail order companies based in the islands can sell items to the UK Value Added Tax (VAT) free if they cost less than £18.

Lord Lucas said he planned to question how much this loophole was costing the UK government.

He said he felt this particular rule had been abused.

Lord Lucas said he was concerned about the impact it was having on small businesses in the UK and the loss of tax to the exchequer.

He said he was not against having systems in place to help Channel Islands' businesses, but not measures that made it impossible for firms in the UK to compete.

Lord Lucas said: "The islands can sell at a price lower than we can buy and that is becoming the case now in areas of cosmetics and of contact lenses and of computer memory of various sorts and in gifts and other areas it seems too.

"I think what started out as a very reasonable concession, whereby we didn't have to employ a lot of customs officers and [the islands] got a benefit for native industries.

"However, it has become something which is just too painful for us to continue with."