VAT relief for parcels entering UK 'reduced'

A reduction in VAT relief on parcels sent to the UK from outside the EU is unlikely to be the last change, according to the UK Treasury.

The tax is not paid on goods below the Low Value Consignment Relief (LVCR) threshold, which changed from £18 to £15 on 1 November 2011.

The Channel Islands are among locations that have been seen as bases for the exploitation of the "VAT loophole".

A Treasury spokesperson said further changes were being investigated.

The spokesperson said: "We are exploring options to further limit the relief so it can be longer be inappropriately exploited."

The growth of internet shopping and relocation of some UK companies to take advantage of the relief has been seen as an exploitation of the system.

It was set up in 1983 with a threshold of about £5 as the cost of collecting the VAT on such small value items outweighed the value of the tax it brought in.

In 2005 the UK did not receive £85m in VAT due to LVCR, a figure that rose to £130m in 2010.

The change to £15 has been estimated to bring an extra £15m for the UK Exchequer by 2015-2016.

Figures for Guernsey last year showed about 650 people were employed in the fulfilment industry, which includes receiving, warehousing, repackaging and sending products.

In 2010 the industry in the island had a turnover of £300m across a range of business sectors including CDs and DVDs, computer accessories and memory cards, flowers and plants, vitamins and health supplements, greetings cards and beauty products.

When the lowering of the threshold was announced in March the UK Government said it would revisit the level of the LVCR threshold in the 2012 budget, if discussions with the European Commission did not produce a workable solution to the problem of exploitation.