The controversial Channel Islands VAT loophole exploited by retailers including HMV, Asda and is to be closed in April, the Treasury has revealed today.

The Treasury said that Low Value Consignment Relief (LVCR) will no longer apply to goods sent to the UK from the Channel Islands. It added that the move will “bring increased fairness for UK businesses, benefit the UK economy and protect millions of pounds in tax revenue”.

The loophole allowed retailers to sell products priced £18 and below free of VAT, meaning they were able to undercut rivals, particularly smaller store-based operations selling entertainment products.

At his Budget this year, Chancellor George Osborne hinted that the Government intended to tackle  the VAT loophole.

At the time Osborne said he would “tackle the exploitation of low-value consignment relief that has left our high street music stores fighting a losing battle with warehouses in the Channel Islands”.

The Government took the initial step of reducing the LVCR threshold from £18 to £15.  But it has now gone further, closing the loophole all together.

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.”