Small high street retailers are being undermined by large chains exploiting a tax loophole to sell cheap products, a small business lobby group warns.
Supermarket chain Asda has become the latest company to set up an entertainment website in Jersey, where VAT on goods under £18 is not charged.
It means products like DVDs, CDs and videos can be sold cheaper than from mainland UK.
Several other national businesses including Tesco, Boots and Specsavers have also exploited the loophole and established an offshoot of their business on the Channel Island.
Tesco Jersey sells CDs for £8.99 whereas the normal online price of a CD is between £9.99 and £11.53.
But the Forum of Private Business (FPB) said the activity is a 'body blow' for independent high street stores which cannot compete with the prices offered by the larger retailers using Jersey.
Nick Goulding, FPB chief executive, said: "This latest venture by Asda has got to be the final straw, it is becoming utterly absurd.
"The supermarket giants are now slugging it out against each other charging these ridiculously cheap prices, by exploiting the Jersey loophole, that the high street simply cannot compete with."
In February, the government admitted an annual £80 million in Treasury revenue is lost through firms using the loophole, a figure that could rise to £200 million over the next few years.
Les Hare, owner of independent store Kingbee Records in Manchester, said: "Of course our business is being affected by the unfair competition from the supermarkets, and this Jersey loophole is just other example.
"How are we supposed to compete when the likes of Tesco are advertising CDs that are cheaper than we can buy them from the distributors?"
The Treasury says the matter is under review. The FPB urged ministers to close the loophole immediately.
