Tesco and Boots under fire over VAT loophole
By Robert Watts
Sunday Telegraph (Filed: 30/01/2005)
A tax exemption used by Tesco, Boots and up to 100 other retailers to avoid charging VAT on CDs, DVDs and a range of other goods will this week face furious criticism from MPs.
These retailers and others including Amazon, the leading internet retailer, and the optician SpecSavers have all set up operations in Jersey, the Channel Island. Under a 20-year-old European law, retailers based on the island can sell goods to consumers on the British mainland worth under £18 without charging the 17.5 per cent VAT.
The practice is entirely legal, but is thought to be costing the Treasury hundreds of millions of pounds a year in lost tax.
On Wednesday, John Healey, the Government minister responsible for overseeing the newly merged HM Revenue & Customs, will be questioned by members of the Treasury Sub-Committee, part of the influential Treasury Select Committee, about VAT.
Michael Fallon MP, the chairman of the Treasury Sub-Committee, last night told The Telegraph that he was appalled that Tesco, led by Sir Terry Leahy, and other retailers are exploiting a regulation that was initially intended to aid small businesses.
"Tesco cannot be a small business," Fallon said. "The Treasury needs to wake up: significant tax revenue is being lost. I expect John Healey to be questioned about this when he appears before the Treasury Sub-Committee."
Norman Lamb, another member of the Sub-Committee, said: "This is a ludicrous loophole and unfair. It must be closed, and we will put that to Healey on Wednesday."
The loophole has allowed UK consumers to benefit from lower prices Tesco's Jersey website charges as little as £8.99, including postage and packing, for a range of chart CDs and DVDs. Amazon set up a similar operation on the Channel Island last year, while Boots is profiting from music sold by a Jersey-based company, on its website.
Meanwhile, small businesses on the mainland see the practice as anti-competitive.
Last week, the Forum of Private Business, a business lobby group, wrote to Gordon Brown, the chancellor, calling for the loophole to be closed.