Tax Loopholes

Jersey-based retailer Play.com is closing its local retail business, with the loss of 147 local jobs. It will no longer be selling directly to customers. In a tweet this morning, the company says direct sales are no longer viable and it's shifting its focus to its 'successful marketplace'. That'll mean 147 jobs losses in its Finance offices and warehouse here, as well as redundancies in Cambridge and Bristol. The redundancies are expected to take effect by the end of March. This is another major blow to Jersey's online retail industry, which has suffered badly since the UK ended LVCR last year. That meant island businesses could no longer export low value goods to the mainland VAT-free. (1)

The demise of Play.Com in Jersey and the loss of jobs is yet another out come of the demise of Low Value Consignment relief, the loophole which allowed retailers such as Play.com and Amazon (with their subsidiary Indigostarfish) to set up distribution centres shipping goods into Jersey and out to the UK to evade paying tax because of the loophole whereby VAT was not charged on goods below a certain value.

It was pretty much on the cards that something would be done about that by the UK, and part of the problem was that by the time action was being taken, such firms were already in existence. In fact, a wiser decision, in the longer term, would have been to deny them a foothold in Jersey from the start. That could have been done under Regulations of Undertakings and Development Law which states that:

no person shall commence a new undertaking or increase the number of persons engaged in an undertaking unless s/he has been granted a licence to do so by the Minister for Economic Development.

Amazon had set up shop in Jersey way back under Amazon Jersey, which later was rebranded Indigostarfish, perhaps to hide the location somewhat from recipients of goods and make the dodge less obvious. This was going back to around 2008, when the Minister for Economic Development, who was responsible for letting them in, was Senator Philip Ozouf.

New businesses were prevented from setting up distribution centres for CDs and DVDs in response to mounting criticism from the UK government, but the existing enterprises continued, until with a speed that I believe came as a shock locally, the loophole was closed.

This had a knock on effect to "home grown" industries such as Flying Flowers which took advantage of LVCR legitimately to send goods off Island; unlike the fulfilment industries, these were locally produced products, not ones imported and repackaged. The same was true of Jersey Potteries. These now had to compete in a market place because 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.

There was also an effect on ordinary Islanders:

As a consequence of the removal of LVCR, Her Majesty's Revenue and Customs now have to calculate and charge VAT on far more goods exported from the Channel Islands and, as a result, customers have experienced delays in receiving their items. A concession exists for non-commercial packets and parcels and since 1 April, Jersey Post has been offering a prepaid VAT scheme to help customers avoid potential delays. However, please note - from 1 January, this concession will be reduced from £40 to £36. (2)

It is another example of short term thinking, of taking advantage of a loophole with no thought for the more generally widespread disadvantages if that loophole would be closed. And we are now all living with the consequences of the decisions made years ago to allow the fulfilment industry to establish a base of operations in Jersey.

The lesson to be learnt is that if a loophole can be closed, then at some point, especially in the current economic climate, it will be. More prudence is needed even if it means turning away what appears to be a good source of income, because not only will the Island suffer in the long term, it also suffers reputational damage; it appears as a place out to make a "quick buck". It's the old story of the person who built their house on sand, and the one who built on solid foundations. Solid foundations may take time to build, they may not be as quick and lucrative, but in the long run, they will be more likely to weather the storms that beset us.

Links
(1) http://www.channel103.com/news/index.php?storyid=24076&s=1  
(2) http://www.jerseypost.com/Pages/TipsonpostingtotheUK.aspx