The government must close a VAT loophole that is affecting small businesses, the Forum of Private Business (FPB) has said.
The organisation is backing a campaign by a group of independent music retailers who will present an open letter with the signatures of owners and managers of over 100 companies, including two major chains.
Due to the loophole in the current law, goods with a value of less than £18 can be individually imported to the UK from the Channel Islands without the imposition of VAT.
The goods are then typically sold online, having first been exported from the UK – a practice that is seriously harming small businesses, the FPB said.
Calls for closing the loophole have recently grown as the negative effects have become more obvious.
According to the FPB, one example is the music retailer HMV, which has announced a 100% increase in online trading in the last quarter since it joined the firms operating out of the Channel Islands.
Despite the issue being raised by both the chancellor Gordon Brown and the National Audit Office, any action to remedy the problem remains to be seen.
Chief executive of the FPB Nick Goulding, said: “Firms who sell goods such as DVDs and CDs from UK high streets have no such advantages and many are being driven out of business simply because they cannot compete with their rivals' artificially low prices. In simple terms all retailers want, surely not unreasonably, is for the re-introduction of a level playing field.”
The FPB estimates that the VAT loophole costs the government around £200m a year on the sale of CDs and DVDs alone.
© Crimson Business Ltd. 2006
