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Play.com stops selling direct to public

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By Dave Stevenson

Posted on 9 Jan 2013 at 12:11

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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User comments

Good, sort of.

It was always a tax scam, however hopefully the Gov will see fit to spend some the £140 million it just saved on creating some work for the 147 people out of a job.

By JStairmand on 9 Jan 2013

Good ridance

to Play.com and all companies whose only competitive advantage is a tax dodge. Tax havens are parasites and should face diplomatic and economic sanctions, or be nuked.

By brendan on 9 Jan 2013

Make sure you understand

The reason that HMRC allowed the items with a value of originally less than £18 (then revised to £15) was due to the fact that prior to computer aided processing it cost HMRC too much to process each item for the amount of VAT they would be able to obtain. Thus £18 items with a VAT amount of, as it was then 17.5%, would gain them £3.15 and it cost them more in man power to process the paperwork.

It was not cost effective.

The system is now computer aided and therefore it makes economic sense (in the minds of HMRC) for HMRC to apply VAT to all items imported from the Channel Islands (which are British Crown Dependencies in the same way that the Isle of Man is; also ruled by Her Majesty The Queen, the same as the rest of Great Britain).

However, this “loop-hole” as it is described in the above article, while it has been stopped for the Channel Islands remains in place for the rest of Europe. Thus the income of British Crown Dependencies is reduced due to the loss of jobs and trade. However rather than going to UK dealers the trend will adjust to the rest of Europe as items will be cheaper from these locations than they will be from the UK and therefore HMRC will miss out on that VAT. For example, Amazon EU SarL who are a Luxembourg company owned by Amazon Europe Holding Technologies SCS. (http://www.publications.parliament.uk/pa/cm201213
/cmselect/cmpubacc/writev/716/m03.htm)

In your article it states that:

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.


So HMRC are HOPEING that Europe won’t take advantage of the “Loop-hole” but obviously cannot guarantee it.


It is also worth noting that the using the word “exploit” in your article is rather inflammatory, and this should not be confused with tax evasion which is of course illegal.

P.S. @ brendan – wind your neck in and learn the facts.

By TristanW on 9 Jan 2013

Glass houses

Of course, @JStairmand and @brendan have never bought goods from outside the EU without ensuring that they pay all the relevant import duties, instead relying on the shipper to do it for them. They've also never bought goods from Amazon, Play, HMV or any of dozens of companies that make use of LVCR. They ensure that their pensions schemes,insurance policies and investments are all domiciled, managed and invested within the EU.

Also, do they REALLY think that the UK government really think that stopping LVCR for the Channel Islands is going to get them £140+ million in tax back. Most of the companies have moved to places like Luxembourg, Switzerland or the US.

It was about politics, looking good on the news, bashing those "evil tax havens".

It's a global market, get used to it.

Yes I do live in a "tax haven"

By Stonedecroze on 9 Jan 2013

Amazon

Amazon currently charge UK VAT, so they are not taking advantage of a loophole there. The lowest European VAT rate is 15%, so the scope for savings is limited.

By tirons1 on 9 Jan 2013

"straightened economic times"

Are you sure you don't mean "straitened". I'm not sure we've come around a corner!

By absolute_dave on 9 Jan 2013

Stonedecroze is a parasite

So let me understand your argument. Rather than blame the corrupt system that turns a blind eye to secretive banking and unrealistically low tax rates, you hold consumers responsible for not voluntarily paying more for goods and services?

It is attitudes like yours that are driving otherwise moderate people to take the view that extreme measures are now necessary to fix international trade. If the G8 wanted it, your pirate economy that depends on stealing from social funds of other countries would end in an instant.

Yes it's a global market, and companies domiciled in yours are only competitive in it because our elected governments allow you to charge no\low tax and still trade with us. I'm not arguing for a world govt setting a global tax rate, but there must be minimum rates of tax and standards of disclosure, or otherwise punishing trade and political sanctions.

By brendan on 9 Jan 2013

Parasite?

I pay 20% tax, just lie you, and all the British Crown Dependecies have been removed from the OECD naughty list, and placed on the nice list, next to the UK, Germany, the US. Don't forget, it was your Governemt that implemented LVCR, not ours.As for your opinion of our legal and tax systems, please, explain how multinationals pay no tax in the UK. Oh, and check out the secrecy laws realting to the state of Delaware when it comes to tax and financial matters. Not to mention all the UK Councils who's pension funds and savings were invested in Iceland (the country, not the frozen food chain in, in case you get confused)or are still invested in, domiciled in and taxed in, foreign countries.

P.S. I'm a donkey, which is a mammal, and not usually regarded as a parasite.

By Stonedecroze on 10 Jan 2013

Gross Errors in the maths!

The amounts of VAT stated in the article is not 20%, but 16.6667% being the fraction of the gross price which is added to the net by adding 20% VAT at the current rate. Amazon's book sales are mostly unaffected by this fact due to zero rating for most books.

By BornOnTheCusp on 10 Jan 2013

Stonedecroze, as a tax-haven supporter, you are a parasite, feeding off the social funds of other countries.

Yes multi-nationals pay tax, but hardly any corporation tax, and in this case VAT. Delaware does it too, so that makes it okay? Again you're using the argument that the solution is for end-consumers and organisations to voluntarily pay more for goods and services (pensions, etc). It will never happen, nor should it. The system must be fixed, new rules on tax and disclosure must be enforced. Yes we agree the UK and other G8 govts are to blame for not clamping down on wall-plaque collectors like you. Your spiv gravy train fuelled by theft from our schools and hospitals must end.

By brendan on 10 Jan 2013

absolute_dave, you're not wrong. Duly corrected.

By davethelimey on 10 Jan 2013

Stonedcroze is right about one thing, it's a global market, so the obvious and necessary solution is to have the major economies co-operate on tax rates and close the loopholes that multinationals use.
This has already happened part-way in the EU where the rules say every member state must have a VAT and that VAT must be at least 15% (exceptions for some things like heating fuel etc.). This is probably why HRMC isn't too worried about goods from Europe being imported under the VAT threshold - an online retailer importing 18 pound DVDs from Luxembourg for example will have 5% (20% - 15%) price advantage, i.e 90 pence. This advantage for the Luxembourg retailer could easily be eaten up by the higher shipping costs compared to those a UK retailer has.

By happyskeptic on 10 Jan 2013

@brendan

Any chance we could have a rational discussion without insults and apparent, acute left wing bias?

By jontym123 on 11 Jan 2013

http://dictionary.reference.com/browse/parasite :
Parasite: "a person who receives support, advantage, or the like, from another or others without giving any useful or proper return, as one who lives on the hospitality of others."

It's not an insult, it's a dictionary definition of Stonedecroze and all who gain from and support tax havens.

How is my argument left wing? I'm not saying fleece the rich to give to the poor, I'm just arguing for a system in which the legislated rate of tax is paid, and cannot be exploited by pirate nations who have secretive banking practices and unrealistically low rates of tax ("wall-plaque collectors"). Your accusations that I'm insulting and left-wing are because you have no counter-arguments to the points I've raised.

By brendan on 11 Jan 2013

@brendan

If you are insulted by my comments then I apologise.

Concerning my assertion of "left-wingedness" your comment:

Quote: " I'm just arguing for a system....cannot be exploited by pirate nations who have secretive banking practices and unrealistically low rates of tax" seems very much like a left of centre rant to me.

By jontym123 on 11 Jan 2013

Jonty, you are playing the man not the ball. Labelling my argument contributes nothing to the debate. If you have something to say, then say it.

By brendan on 11 Jan 2013

@brendan

My final post on this topic.

As I say, Brendan, your comments appear to me to be little more than a left wing biased rant. Dignifying them with an answer is pointless.

By jontym123 on 12 Jan 2013

I couldn't have described your comments on this topic better myself (pointless).

By brendan on 12 Jan 2013

a fine company who shall be missed--A greavt pity that MPs pretty much got away with creative accounting, so poorer people have to pay the short fall

By invalidscreenname on 13 Jan 2013

a fine company who shall be missed--A greavt pity that MPs pretty much got away with creative accounting, so poorer people have to pay the short fall

By invalidscreenname on 13 Jan 2013

Okay, probably a bit of a technicality, but LVCR didn't cost the UK anything. HMRC would have made a theoretical £140m extra however.

As for Play and the rest being evil tax dodgers, surely that is wrong as well. They were using LVCR to undercut the competition. VAT is technically payed by consumers so the tax dodgers are actually the people who bought from those online stores. Ops.

If you want someone to blame, surely it's all of us tech savvy consumers who search the internet for the absolute lowest prices rather than nipping out to the nearest PC World to pay their inflated prices to support a healthy UK economy. The fact is, you can't have cheap goods and high profit and a good tax income. Money, alas, does not grow on trees.

By josephlck on 13 Jan 2013

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