Online retail group The Hut will retain its Channel Islands base despite the Government revealing it will close the VAT loophole that has allowed it and other retailers including HMV, Asda and Play.com to sell products VAT-free into the UK.
The Hut Group, which employees 50 people at its Guernsey base, is one of many retailers that exploit the Low Value Consignment Relief (LVCR) which allows products priced £15 and below to be sold VAT-free into the UK from the Channel Islands.
Altium Securities head of research Greg Feehely, who advises the etail group, told Retail Week that because the closure of the loophole affects all retailers based on the Channel Islands, The Hut remains on a level playing field.
He added that The Hut will continue to use the base to distribute to mainland Europe, and will also continue to sell into the UK. It is expected The Hut may have to revise its pricing policy to do so.
The loophole, which will be closed in April, is particularly exploited by entertainment retailers, including HMV and Play.com - as well as supermarkets including Asda - allowing them to undercut rivals.
Deloitte said the proposed change could breach EU law as it could place the Channel Islands at a competitive disadvantage as retailers can continue selling similar goods into the UK from other non-EU jurisdictions where the LVCR will remain.
The consultancy said that retailers could be forced to look for alternative distribution models to mitigate the tax costs.
Grant Thornton head of indirect tax Lorraine Parkin said: “These changes are likely to have an adverse impact on many organisations that have fulfilment operations in the Channel Islands and the short time frame before their introduction means that decisions on the appropriate commercial response will need to be made quickly.
“Businesses fulfilling from other territories outside the EU appear not to be affected. Therefore, subject to commercial and supply chain constraints, it would not be a surprise to see businesses move.”
Play declined to comment. HMV said it was considering its position.