Channel Islands imports must carry VAT, court rules

High Street retailers will not escape VAT on imports into the UK from the Channel Islands, the High Court has ruled.

Mr Justice Mitting rejected a judicial review bid by Jersey and Guernsey against the Government’s decision to stop imports of goods by mail order from the islands being VAT free. The market, which is worth an estimated £500m, will be forced to start charging VAT from 26 March. 

The ruling gives a win to One Crown Office Row’s Phillippa Whippel QC who was instructed by HMRC to defend the challenge.

Matrix Chambers’ Sam Grodzinski QC was instructed for Guernsey while Brick Court’s David Vaughan QC was instructed for Jersey.

Monckton Chambers’ Christopher Vajda QC was instructed by Edwin Coe partner David Greene to intervene on behalf of Retailers Against VAT Avoidance Schemes (RAVAS), in support of HMRC.

Under European law, imports that have a low or negligible value can be exempt from VAT, which is referred to as Low Value Consignment Relief (LVCR). Member states have the power to exclude mail order goods from the exemption.

During an expedited trial that started earlier this month, Jersey and Guernsey argued that the exemption only granted an ’all or nothing’ or binary power meaning the LVCR should be unanimously enforced across all member states.

Furthermore, they argued, the Government’s decision breached the principles of equal treatment and fiscal neutrality because the UK would be treating the imports differently from imports coming from other non-EU countries such as Taiwan or Switzerland.

Supporting HMRC, RAVAS submitted evidence purporting to show that traders operating through the Channel Islands are engaging in abusive practices, and that the LVCR is having a hugely detrimental impact on UK-based retailers.

The court rejected the application because the directive granted the member states an unfettered discretion to exclude mail order goods from LVCR. Further, as Jersey and Guernsey are not members of the EU the principles of fiscal neutrality and equal treatment do not apply to them.

Welcoming the ruling Greene stated: “UK retailers have been seeking an even playing field but have been competing with supplies from the Channel Islands with one hand tied behind their back.  RAVAS provided evidence to the court of wide-ranging abuse including the circulation of goods taking advantage of the exemption.”