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Low Value Consignment Relief

Background

It may not seem like it at times but it has long been recognised by HM Revenue & Customs that collecting small amounts of tax is not cost effective.  This is reflected in a number of administrative practices such as our high VAT registration threshold (the highest in the EU). Occasionally, however, reliefs of this nature are pitched at the wrong level and end up being exploited leading to larger tax losses than originally envisaged by HM Revenue & Customs.

Low Value Consignment Relief

One relief that HM Revenue & Customs believes to have been abused is the Low Value Consignment Relief.  This applies to commercial consignments with a value of less than £15 (previously £18) and rather than requiring VAT to be accounted for on shipments of such small value the relief enables them to be imported free of VAT altogether.

For many years the relief operated successfully but in recent years HM Revenue & Customs believes that large companies have exploited the relief by deliberately routing goods via the Channel Islands and cited contact lenses, contact lens solutions, flowers, plants, CDs, DVDs, ink cartridges and vitamins as examples.

Change of Law

As the relief is an EU wide measure it was not possible for HM Revenue & Customs to change the law without authority from the EU.   As an interim measure HM Revenue & Customs reduced the VAT free consignment limit from £18 to £15 on 1 November 2011 for all imports while waiting for permission to be received.
This has now happened and a further change of the law will take place which will remove the relief altogether for shipments from the Channel Islands with effect from 1 April 2012.

Imports from other non-EU jurisdictions are not affected by this change although HM Revenue & Customs has stated that the matter will be kept under review.

The draft legislation is expected in early December.  Meantime affected businesses should take account of the change and amend their systems accordingly.

Further information

Further information on this matter is, as usual, available on the HM Revenue & Customs website (www.hmrc.gov.uk) or from your usual Shipleys contact or from the VAT team.

Specific advice should be obtained before taking action, or refraining from taking action, on any of the subjects covered above.  If you would like advice or further information, please speak to your usual Shipleys contact.

Need more help? Please contact us at advice@shipleys.com or +44 (0)20 7312 0000