Guernsey firms VAT relief reduced for parcels entering UK

Mr Osborne said he would look at the value of the UK VAT relief again in his 2012 budget

Guernsey-based companies will be required to pay VAT when exporting goods to the UK valued at £15 or more.

The measure, announced by the UK Chancellor George Osborne during his annual budget on Wednesday, will come into effect from November 2011.

He said: "We'll tackle the exploitation that's left our high street music stores fighting a losing battle with warehouses in the Channel Islands."

The present maximum limit of Low Value Consignment Relief (LVCR) is £18.

Mr Osborne described the move as a specific measure "to shut down the open abuses that have been allowed to continue for too long".

In addition, he said he would explore options with the European Commission to limit the scope of the relief so that it can "no longer be exploited for a purpose it was not intended for".

The relief was introduced by the UK because it was considered too costly to collect VAT for small imports such as bunches of flowers.

However several companies have set up in the Channel Islands to sell large quantities of CDs, DVDs and other goods, in order to take advantage of the relief. Hundreds of islanders are now employed in this fulfilment industry.

Critics have claimed this has led to the demise of some high street retailers in the UK.

Paul Ingrouille, the production manager at the Guernsey Clematis Nursery, said the chancellor's move would be unlikely to have any dramatic effect on its stated target.

"It probably won't really affect strongly the DVD and CD sector, which is the one that's raised most of the alarms," he said.

The UK government said it will assess the level of the LVCR again in the 2012 budget, if discussions with the European Commission are not considered satisfactory.