Play.com stops selling direct to public

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Play.com's retail business is shuttered thanks to VAT loophole closure

Channel Islands-based retailer Play.com has announced the closure of its direct retail business, after the closure of a tax loophole.

A statement from the company described the closure as a "company restructure", and blamed the move on the government’s closure of a VAT loophole that allowed retailers to sell goods worth under £15 VAT-free from the Channel Islands.

"The removal of LVCR [Low Value Consignment Relief] implemented in April 2012 has been a determining factor in this decision," the company added.

The site will continue to sell products as a "marketplace", facilitating the sale of goods to and from private individuals.

The closure comes at the cost of 147 jobs in Jersey and a further 67 in the UK mainland.

According to HM Revenue and Customs, LVCR was "never intended" to allow companies to undercut mainland rivals by cutting out VAT. The tax agency estimated in 2012 that 75% of all international parcels delivered to the UK originated in the Channel Islands.

It reduced the maximum value for VAT-free products from £18 to £15 in 2011, and closed the loophole completely in April 2012, ending Play.com’s ability to offer goods such as CDs and DVDs for 20% less than mainland shops.

In 2011 the Treasury estimated that LVCR cost it £140 million per year. The tax relief will continue to apply to goods worth under £15 from other EU countries, but the HMRC believes that the added costs of posting goods to the UK, plus delivery delays caused by the need to manually assess VAT means retailers are unlikely to be able to exploit the tax relief as effectively.

While the removal of LVCR may level the playing field between offshore retailers and mainland companies, the change has hit the economies of the Channel Islands, with economic development minister Alan Maclean claiming in September 2012 that it had already cost 400 jobs.

With its retail business gone, Play intends to "focus exclusively on our successful marketplace, which is our main business area". The company was bought for £25 million in 2011 by Japanese company Rakuten.

Play.com's closure means it joins Jessops as a high-profile victim of straitened economic times. The camera retailer has announced it has entered administration, putting its 200 stores and around 2,000 staff under threat.

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