VAT rules tightened as government closes loopholeVAT threshold lowered before Christmas

11 November 2011

VAT will be charged on CDs imported from the Channel Islands after April 2012

The government has reduced the threshold for VAT on items imported from outside the EU to £15. After April 2012, VAT will be payable on items imported from the Channel Islands, no matter how low their value.

Tax exemption for low-value items

Currently low value goods imported from outside the EU are exempt from VAT and duty under a concession known as ‘low value consignment relief’ (LVCR). Until November the threshold for VAT was £18 but this has now been cut to £15. 

Goods worth more than £15 but less than £135 are exempt from customs duty, but subject to VAT. Goods worth over £135 attract customs duty as well as VAT but have duty waived if this is less than £9. The rules are particularly significant for items ordered online, such as DVDs, CDs and vitamin tablets.

Channel Islands loophole closed

In recent years, importers from the Channel Isles had taken advantage of the LVCR exclusion to gain a commercial advantage. By keeping prices below the old £18 threshold, they were able to avoid charging VAT and undercut mainland retailers by up to 20%. 

Which? personal finance expert, Ian Robinson says: ‘In many cases goods were shipped to the Channel Isles and then re-imported in a circular trade the new measure is designed to eliminate. The practice won't be completely halted until 2012 but lowering the threshold will make it harder for some items to be discounted in this way.’

Gifts sent from non-EU countries have a higher VAT threshold of £40. Above £135 duty also becomes payable, but this is waived if it amounts to under £9. To qualify, the item must be sent from a private individual and be correctly documented. If duty or VAT is payable on an item sent by post, this is collected by Royal Mail, which also charges a handling fee. Courier services operate in the same way.

Personal imports also exempt from tax and duty

Goods you bring back with you from a trip to a non-EU country are exempt from VAT and duty if their value is under £390 provided you arrive by a commercial plane or boat service. If you travel privately, the limit is only £270. Alcohol and tobacco products are treated separately, with limits on the quantities you can import imposed by HMRC. 

Those returning from EU countries can bring in unlimited quantities of beer, wine, spirits and tobacco, provided this is for their personal use. HMRC will ask you to prove this is the case if you have more than 110 litres of beer, 90 litres of wine, 10 litres of spirits, 20 litres of fortified wine, 800 cigarettes, 200 cigars, 400 cigarillos or 1kg of tobacco.

More on this...

When you do and don't pay VAT- our guide to what's exempt and what's not

Online shopping- your rights when shopping online explained

Tax rates, allowances and amounts- read our tax guide, including VAT