VAT-free imports from the Channel Islands

Many low-valued exports of goods from the Channel Islands to the United Kingdom were exempt from value added tax (VAT) until April 2012, due to the operation of an EU tax relief called low-value consignment relief (LVCR). LVCR was not limited to the Channel Islands, and continues to apply to all low-valued imports into the EU from other countries outside of the EU.

When goods are imported into the EU from a non-EU territory, they are generally subject to a VAT (currently 20% in the UK for most goods). However, as a result of EU Council Directive 2009/132/EC, an optional exception is allowed on shipments of a low value to speed up the transit of low value goods which might otherwise be delayed by customs and also reduce the cost of tax collection where it might not be practicable. This administrative relief is known as low-value consignment relief (LVCR). Member states which allow the relief must ensure that it does not cause competitive distortion or allow VAT abuse.

The maximum allowed value of the goods for which the exception applies is set by the importing state, and can be between €10 and €22. The UK currently sets the limit to £15 for commercial goods.

The United Kingdom is a member of the EU and, as a member state is obliged to apply VAT to a range of goods (see European Union value added tax). Total online retail spending online grew by 33.4% in 2007 to a record £10.9bn and UK online sales are predicted to reach £28.1bn by 2011 – 8.9% of all retail sales. The reasons for the success of internet retail are varied, covering factors related to convenience, time saving, breadth of choice, and price. With reference to online music sales in particular, it has been noted that the low price offered by online retailers such as Play.com, Amazon.co.uk, TheHutgroup.com and HMV plays a significant factor in these sites' popularity. A study by the Kantar Group found that in 2009 there was an 18% increase in the volume of online CD sales. Many or most of these were shipped from the Channel Islands, although they are almost always controlled by UK-registered parent companies. Furthermore, Kantar found that 95% of such sales are low enough that VAT charges were not applied to them.

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