Green Shoots

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Channel Islands – tax haven for the masses and no chance of being carbon neutral

There was once a time when only the rich could own sports cars, holiday in St Tropez and save on personal tax by using tax havens. However in our modern age of seemingly believing that everyone has a right to everything, you use credit to own your sports car, Easy Jet will get you to the South of France and most High St online retailers can help you benefit from a tax haven. On the last point even the most financially challenged can benefit from the independent tax arrangements of the Bailiwick of Jersey.

Not convinced? Try buying a CD or DVD online. You’ll undoubtedly find yourself trading with a company based in the Channel Islands. A small piece of tax legislation called low-value consignment relief (LVCR) was designed to save people who are buying low value items across borders in the EU from the differences in intra-EU VAT rates. Generally orders must below £18 to qualify.

So how does it work when you want to buy a DVD? You place the order, the goods are shipped from Jersey or Guernsey and usually delivered by Royal Mail – who run a heavily subsidized postal service to and from the Channel Islands. You the consumer end up saving 15% on the price of the goods and no one really loses out.

Well I don’t believe that’s true and here my reasons why.

First, the whole scheme is a deliberate piece of tax avoidance. There is no reason why the Channel Islands should be at the heart of this trade for any other reason that avoiding tax. The distribution costs of sending good via the Channel Islands are higher. The goods are not manufactured on the islands. Developing schemes to avoid tax is not very ethical is my view.

Second, I believe that as well as avoiding tax, I am convinced that we, the UK tax payer, are actually subsidizing the trade. The Royal Mail runs a flat rate service across the whole of the United Kingdom including the Highlands, Northern Ireland, Isle of Man, the Sciliy Isles and the Channel Islands. If I post a letter from Gateshead to Newcastle first class, it would cost the same to send it to Jersey. The costs to the Royal Mail are hugely different. As citizens in our nation, we have decided that sharing the cost of the mail across the whole country is something we are happy with. Why should Auntie Mabel pay more to send birthday cards around the country? However, subsidizing Tescos to send out DVDs from the Channel Islands just to avoid paying VAT really isn’t a fair use of the system. The nation misses out on the tax revenue and makes a further subsidy to the delivery cost too!

More important than both of these points is the environmental impact of the trade. The DVD you are buying is likely to be making a several hundred mile round trip for no purpose other than to avoid UK VAT. Of course, DVDs being light the impact seems small but the volume of trade is increasing significantly. The following retailers all use Jersey or Guernsey to help you avoid UK tax – Play, HMV, Tesco, Asda, Zavvi, WHSmith, Amazon and Argos. That is a big percentage of online sales and the impacts seem a little more obvious. Hundreds of tonnes of products being shipped needlessly on a roundtrip has a big environmental impact.

On top of the shipping cost there is also lots of needless packaging wasted. Because of the £18 limit, orders for multiple DVDs are split into multiple shipments so as to still qualify for the LVCR. Order 10 DVDs at £15 each and you are likely to get 10 deliveries and 10 Jiffy bags. Even more wasted resources.

Of course the two-faced hypocrisy of the High Street retailers is astonishing. I get made to feel guilty in the extreme at the checkout if I ask for plastic bag because I have forgotten my jute bag. And yet these green-wash retailers are deliberately burning fuel and wasting resources simply to allow their online customers to avoid VAT. I think it is safe to assert that what good Tescos does by putting a wind turbine outside a store, it undoes through its Channel Islands selling.

In March the relative poor islanders of the Maldives took a brave step – they decided to commit themselves to turning their islands carbon neutral. An amazing commitment for a disadvantaged group of people. I would contend that the good folk of the Channel Islands could much more easily afford to go carbon neutral and they could take a good first step by stopping this trade.
So Mr Darling I know you are looking for a little more than £40million a year (my estimate of what the trade costs the UK payer in lost revenue and postal subsidy) but as Tescos are always reminding us “every little helps”.

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2 Responses to “Channel Islands – tax haven for the masses and no chance of being carbon neutral”

  1. Philip Soulsby Says:

    Hi Andy,
    While much of what you say on the carbon footprint of this trade is very true and relevant, may I point out an error and an omission in what you say. Firstly, the post from the Channel Islands is not Royal Mail, nor subsidised by them, mail is sent off island by Guernsey Post or Jersey Post, for which Channel Islanders pay quite a premium (although I suspect the direct mailers you refer to get a significant bulk discount not available to the vast majority of small local businesses) so the concept of Royal mail subsidising this business is not actually correct. Secondly, it is not only the Channel Islands used, as I regularly get Amazon mailings from Germany and other EU countries! As always, a tax relief there for good reason to help the public, (de minimis provisions and administrative simplification) will be abused by large businesses until removed. Bashing the Channel Islands for behaviour that originates in the UK is also a very popular sport at the moment!
    Keep up the good work, it is only by informing and educating people on their choices and the associated impact that we can hope to improve things.
    Phil Soulsby

  2. andy Says:

    Thanks clearing up those points Phil. I should have thought of you and Mondomundi.com when I first wrote the piece. I’m intrigued by the maths of the mailing as the post from this end is either subsidised by Royal Mail or there is a hidden charge to the Guernsey\Jersey post. A First class letter going from England to Jersey costs the same as within England. Do Jersey Post pick up the tab for incoming mail?

    Amazon is an interesting case as they no longer directly use the Channel Islands to avoid VAT. They send the orders to a market place company called IndigoStarFish. It seems they were told by the Jersey authorities to stop as they were in danger of giving the “loop hole” too much visibility. Won’t be longer before The Hut gets clobbered or the law changes IMHO.

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