When the loophole that allowed mail-order websites based on the Channel Islands to sell CDs and DVDs to UK customers without charging VAT was closed earlier this year, many predicted that the main operators of those services would look to relocate to other non-EU countries, where so called Low Value Consignment Relief would still apply.
And now The Guardian has reported that Cheshire-based The Hut Group, having closed its Guernsey base, is using a warehouse in Chicago for some of its UK mail-order operations. The Hut formerly ran parts of Tesco and Asda’s online entertainment retail sites, as well as its own services, including the zavvi.com website, it having acquired that domain after the Zavvi retail chain went under.
The Guardian says that The Hut, which postponed plans for an IPO after it became clear that LVCR would be withdrawn from Channel Island-based companies, is no longer working for the supermarkets, but has expanded its zavvi.com enterprise.
It’s not clear when the company’s Chicago base was launched, and The Hut insists that products shipped from the warehouse there only account for 13% of its overall revenue, though it’s not clear what percentage of low-value products (which would benefit from LVCR) are routed via the US base. Either way, The Guardian reckons that DVDs from European suppliers are routinely sent on a 7000 mile round trip via the US and back to UK customers.
Asked for comment on that fact by The Guardian, The Hut said: “We operate a global consolidated stock system mirroring that of many of our e-commerce peers. This allows us to fulfil orders based on immediate stock availability across all of our warehouses. As a result, stock held in the UK fulfils both UK and international orders and similarly, stock held in the US fulfils both US, UK and international orders, with availability of stock the determining factor”.
Which may or may not be true, though it is worth noting that many of the companies that had mail-order bases on the Channel Islands, benefiting from the VAT dodge, insisted for years that there were logistical reasons for having warehouses offshore and that the main motivation was not related to LVCR, and yet nearly all those firms have shut their English Channel bases since the UK government ended the tax relief for products shipped from there.
Of course the key benefit of basing mail-order operations on the Channel Islands while LVCR applied was that the geographic closeness of the islands to the UK, and the close links between the UK and the British Crown Dependencies, made having a VAT dodging operation so much easier and cheaper to run, and setting up bases elsewhere beyond the EU is much more tricky, meaning only a few of those previously based on Jersey or Guernsey are likely to try. Though if they get it working, they may try to outsource their VAT dodging infrastructure to others.
UK Chancellor George Osbourne did commit to stop LVCR relief applying to other countries too if further abuse of the system could be shown, so relocated LVCR-benefiting set ups may prove to be short lived. Plus moves are afoot on a wider level to stop online operations exploiting the tax system so to get advantages over high street retailers, though such developments may take some time to take hold.
Either way, those independent entertainment retailers who blame the collapse of indie traders across the UK in part on the VAT-dodging online competition will be watching with interest what the former Channel Island operators, like The Hut, do as the tax relief systems change.