Tax avoidance plans fail to address Channel Islands VAT loophole

GOVERNMENT plans to clamp down on tax avoidance have missed out a Channel Islands VAT loophole costing the Treasury hundreds of millions of pounds per year and devastating independent traders, the Forum of Private Business is warning.

Many large retailers have set up shop in Guernsey and Jersey and benefit from Low Value Consignment Relief (LVCR), which allows goods worth up to £18 to be imported into the UK VAT-free.  While some consumers buying items such as online DVDs have seen prices fall, many small shops and UK mainland based internet retailersare unable to compete or move off-shore themselves and are being forced to close.

Following its pledge to address tax avoidance in the June Budget, and October’s Comprehensive Spending Review (CSR), the Government has announced legislative changes aimed at clawing back some of the £7 billion of tax revenue that is lost annually.  Immediate measures include preventing groups of companies using intra-group loans or derivatives to reduce their tax bill and reviewing schemes in which companies do not fully recognise loan and derivative monies in their accounts.  In addition, ministers have commissioned a feasibility study into a potential ‘Government General Anti Avoidance Rule’ (GAAR).

Further details are to be announced on plans to address the practice of ‘disguised remuneration’, prevent investment companies retrospectively changing the currency they prepare their accounts in for tax purposes and tackle businesses which artificially split the supply of services to reduce VAT.

However, the plans do not include addressing LVCR through the Channel Islands which, while a legitimate tax relief, must not be exploited if it leads to unfair competition or VAT abuse.  This inaction is despite repeated calls from independent retailers and the Forum. In 2005 the business support organisation gave evidence to the All-Party Parliamentary Small Shops Group on the impact of LVCR abuse.

This group’s 2006 report ‘High Street Britain 2015’ – which stated that, based on the then rate of closures, the UK’s privately-owned shops would disappear completely by 2015 - recommended that:- "The UK Government should immediately apply the lowest threshold applicable for the relief of low value consignments permissible in the directive, which is currently 10 Euros, (approximately £7) – this would eliminate the vast majority of exploiting trade almost immediately.  The enforcement, by government bodies like Customs and Excise, of VAT should be reviewed to ensure a level playing field."

In the 2006 Budget the previous government said it was aware the loophole, originally an administrative relief, was “being exploited” and that it would consider changes to prevent this.  However, since then even more retailers have set up in the Channel Islands and no action has been taken to protect small, independent shops and internet retailers.

Former Forum member Richard Allen was forced to close his mainland-based online music retail businesses, Delerium Mail Order, as a direct result of LVCR on goods imported via the Channel Islands.  Mr Allen, along with a group of UK internet and high street retailers, has formed a pressure group called Retailers Against VAT Abuse Schemes (RAVAS) has filed a complaint with the European Commission, arguing that LVCR is being used in a way that distorts competition and amounts to VAT abuse.

The complaint argues that the UK Government has failed to prevent LVCR from being used in a way that distorts competition and amounts to VAT abuse. The Commission’s final decision will be announced in the New Year.

“It’s utterly incredible that HMRC and The Treasury have allowed this abusive industry to grow to the size that it is now - particularly given the many warnings they have had since 1998.  Goods are being round tripped from the UK to the Channel Islands for no purpose other than to avoid VAT, in direct contravention of the basic principles of EU law. Our Government just watches idly as this trade continues to grow.  My own business was unable to compete when offshore traders started to compete within the VAT margin and now over 90% of music retail is offshore. You just cannot match the prices if you have to charge VAT, yet the 20% VAT saving is big enough to be a decent margin if you can move to the Chanel Islands.   While this also affects shops, I was an internet retailer and this abuse has completely distorted the market and created a barrier to entry. You have to buy your way offshore to trade. Do we want to see jobs sent offshore, along with all the tax it generates for our country? It’s madness - the UK could act immediately by lowering the threshold at which this relief operates to 10 Euros, exclude certain types of mail order goods on a product and territory basis and by taking anti-avoidance legal action using existing case law. Doing nothing is not an option the UK has the right to exercise.” said Mr Allen.

The Forum believes the LVCR loophole should be addressed as a priority as part of a shake-up of the UK’s complex tax system.

Last year the Forum's ‘Cost of Compliance' Referendum member survey found that tax administration is one of costliest bureaucratic burdens faced by small firms, leaving them with a bill of £1.8 billion per year. Only employment law and health and safety legislation cost more, at £2.4 billion and £2.1 billion respectively.  More recently, research carried out by the Forum earlier this year found that 68% of small employers believe the tax system is ‘unfair’, with 52% believing that larger firms have the resources to invest in tax loopholes where they cannot afford to do so themselves.

“The Channel Islands VAT loophole distorts competition and leads to VAT abuse – clearly it was not created to allow large retailers to undercut their smaller, mainland competitors, which is what is happening now on a worrying scale, forcing many to close. For small firms to be able to grow and create jobs as part of a private sector-led recovery, and in order to preserve the very existence of independent retailers across the country, LVCR must be removed without delay in addition to addressing other tax avoidance schemes.”  She added:- “If the Government is serious about achieving rapid small business growth this should happen as part of a major re-think of the operation of the UK’s tax system, which is currently one of the most complex in the world.”  said the Forum’s Head of Campaigns, Jane Bennett.

According to a statement, on 9 December the Government will publish a draft protocol setting out the circumstances in which it will consider changing tax legislation with immediate effect.

In the CSR the Chancellor invested £900 million in tackling tax evasion and avoidance. The Government expects to raise £2 billion in additional tax revenue during the course of the next Parliament, and protect forecast revenues of up to £5 billion over the next four years.

In January 2011, the Forum will submit evidence on the Channel Islands VAT loophole to the Treasury Select Committee as part of its inquiry into the fundamental principles of tax policy.

SOAPS PORTRAY ALCOHOL CONSUMPTION THROUGH ROSE-TINTED GLASSES

ON average, 38% of soap air time features alcohol, but the negative consequences of drinking to excess are rarely shown, according to new research by alcohol awareness charity Drinkaware. Despite 162 instances of characters drinking to excess over a 6 week monitoring period, only 1.5% of alcohol scenes portrayed hangovers and less than 1% combined showed alcohol-related sickness, crime, regret or anti-social behaviour.

With 42% of 11 to 17 year olds watching pre-watershed soaps and research showing actions without an obvious consequence are more likely to be copied, Drinkaware is concerned that soaps’ under-representation of the adverse effects of drinking to excess may perpetuate a view among millions of under 18s that regular drinking doesn’t have negative consequences. The alcohol awareness charity has requested meetings with broadcasters and developed recommendations to help soap producers better depict the risks associated with general alcohol misuse.

The Drinkaware study examined the representation of alcohol in the UK’s top four soap operas - Coronation Street, Eastenders, Emmerdale and Hollyoaks. Consistent with real life, it finds that soap characters were most often depicted drinking alcohol as an aid to socialising or celebration, or to relieve stress. However harmful effects of excessive drinking were generally only associated with extreme storylines such as Shadrach Dingle’s death from alcoholism in Emmerdale.

Other observations from the research include:-

► 17% of soap coverage features ‘active’ depictions of alcohol consumption, where a character is drinking, buying or accepting an alcoholic drink.

► Drinkaware research shows 43% of adults would turn to a cup of tea to relax after a stressful day, while 34% would have an alcoholic drink In soaps however, 15% of scenes featuring alcohol represent it as an aid to relaxation but only 9% of all scenes feature tea.

► 836 drinks (equivalent to more than 3000 units of alcohol) were consumed during the 6 week monitoring period, including 188 pints of beer, 286 glasses of wine and champagne and 84 servings of spirits.

► Emmerdale tops the tipple chart, with an average of 8 drinks consumed per episode. A more restrained Hollyoaks cast consumed just 4 drinks per show. Coronation Street and Eastenders tie on an average consumption of 7 drinks per show.

Chris Sorek, Chief Executive of Drinkaware, says:- “British soaps’ current representation of the substantial role alcohol plays in peoples’ lives isn’t too far from reality, but with research showing people, and particularly children, make assumptions about acceptable real-life behaviour from their television viewing, it’s important the negative effects of drinking too much aren’t down-played. Weaving some consequences of drinking to excess into soaps won’t require fundamental script or storyline changes- even a passing reference to a hangover will start to nudge reform of the on-screen drinking ‘norm’.   When viewers sit down to watch a soap they want to be entertained and certainly aren’t expecting to see a public health campaign. But soaps are still a useful channel to get information to viewers. We need to avoid normalising the idea of consequence-free drinking to excess, especially among under 18s, so people of all ages can make informed decisions about their own drinking based on the facts.   Challenging habits and social norms is central to reducing alcohol misuse and everyone can contribute to positive behaviour change, including soaps. When people see issues on screen they go looking for facts and advice, as shown by the increased number of visitors looking for information about alcohol poisoning on the Drinkaware website the day after Billy Jackson’s death from alcohol poisoning in Eastenders.7 Drinkaware can support soaps by providing consumers with the real-life facts about alcohol and its effects on health and wellbeing either on programme website.”

Drinkaware recommendations for soap producers include:-

► More representation of the range of possible negative effects associated with drinking to excess, for example, if a character consumes over the daily unit guidelines in one episode they could be seen to suffer a hangover, sickness or an accident.

► Storylines featuring characters who regularly exceed the unit guidelines should ideally incorporate consideration of the possible long term effects of drinking to excess, for example, fertility problems, depression, diabetes, heart disease, stroke or cancer.

► The prominence of food and soft drink alternatives in scenes featuring alcohol should be increased, for example, more hot drinks machines and meals in pubs- pubs in the UK now serve more meals than Britain’s restaurants.8

► A longer term partnership with Drinkaware as a go-to organisation for pre-production audience insight, research and information, and after-show tips and advice for consumers.

Dr Harry Sumnall, Reader in Substance Use, Centre for Public Health, Liverpool John Moores University says:- "Health and media professionals face a real challenge in ensuring accurate representations of alcohol use do not interfere with the soaps' prime purpose, to entertain viewers. We know audiences don't like heavy handed health messages, but the value of soaps is in their reflection of real life; hangovers, accidents, embarrassing situations, and running out of money are real life consequences of letting alcohol use get out of hand.   TV producers are in an enviable position, in that they can influence national conversations and opinions about particular issues. I think we are all in agreement that alcohol misuse is something that the public is concerned about, and although just working with media won't provide all the solutions, its one way that health professionals and charities can challenge some of the misperceptions about alcohol and its effects.”

TRON LEGACY REPORT

WELL for the second, we have decided to wait to next week’s issue of Southport and Mersey Reporter for the Tron Report, to go inside with the UK release of this amazing film… But for now we can reveal that we have a prize to give away!   Sorry about this, but good things come to those who wait...  ;-)