2011 budget set to end e-commerce VAT loophole

By Rachel Hand topicIcon Internet News

Tax bubble bursts

The 2011 budget includes measures that may spell the end of online shopping bargains. Chancellor of the Exchequer George Osborne announced yesterday that new measures will be set in place over the coming year, aiming to end a tax loophole exploited by many e-commerce companies.

The Low Value Consignment Relief (LVCR) is an EU VAT waiver that applies to any imported goods costing under £18. E-commerce companies have been using this to their advantage for around ten years, with CDs, DVDs and more seeing impressive price cuts. According to the Guardian, "the discount prices offered online are available only because of elaborate warehouse and shipping operations offshore, largely on the Channel Islands."

The LVCR limit will be reduced to £15 in time for Christmas. For retailers that used the loophole including Play, HMV and Amazon, this could either result in increased prices being passed on to customers, or further price cuts to meet the £15 limit. Meanwhile, the Chancellor promised to address the issue with the EU, and reduce the LVCR again in the 2012 budget.

Technology wins

In contrast, the technology industry is set to benefit from this year's budget. TechRadar reported that the government would be investing in a technology innovation centre. A further £100 million of investment has been pledged to science, of which £10 million will benefit the UK space industry. The gaming sector is another winner, with improved tax credits resulting in a predicted £7 million bonus for video game development studios.