Low-value consignment relief

When goods are imported into a European Union country from a non-EU territory, goods may be subject to customs duty, excise duty and value-added tax.

Value-added tax is an EU tax adopted by the member states of the European Union. However, as a result of the action of an EU administrative VAT relief an exception is an option allowed on shipments to the member state of a low value. This administrative relief is known as Low Value Consignment Relief or LVCR and it is governed by the EU Council Directive 2009/132/EC.[1][2][3]

It is an optional VAT relief designed to speed up the transit of low value goods through the mail which might otherwise be delayed by customs and also reduce the cost of tax collection where it might not be practicable. Member states, if they decide to allow this relief, can set it between €10 and €22, but must ensure that it is applied in a way that does not cause competitive distortion or allow VAT abuse. After the BrExit transition period, the UK withdrew LVCR meaning all imports attract VAT regardless of value from 1st January 2021.[4] The European Union is expected to implement similar changes from 1st July 2021.[5]

An example was found in the LVCR allowed by the UK on shipments originating from the Channel Islands. The UK domestic VAT went uncharged and this allowed internet order fulfillment centres to spring up on the Channel Islands for packages under £18 (€22). In 2011 the UK Treasury announced that from 1 April 2012, LVCR will no longer apply to goods imported from the Channel Islands.[6] It was announced on 4 October 2012 that Condor Logistics would close its operations with the loss of about 180 jobs (110 in the UK, 50 in Jersey and 20 in Guernsey). The move was blamed on changes to LVCR affecting the Channel Islands.[7] In August 2013, Huelin-Renouf, which had operated a "lift-on lift-off" container service for 80 years between the Port of Southampton and the Port of Jersey, ceased trading,[8] although the business was later taken up by a market entrant, Channel Island Lines.

Abuse

Between 2014 - 2020, LVCR was heavily abused by UK based ink cartridge online retailers Ink Jungle https://inkjungle.co.uk & Office Beaver https://officebeaver.co.uk (same ownership), whereby items were sent between the value of £15 all the way up to £150. Invoices would be falsified to show a commercial value of £14.99, with the remaining value allocated to a ‘handling’ charge, typically ranging between £25 - £80.

Exploiting loopholes in Amazon and eBay’s tax calculation settings, Ink Jungle / Office Beaver (also trading under the names ‘Your Jungle, Ink Nation, Rocket Inks, Well Cheap’), were able to avoid paying and charging VAT on all sales by ‘circular shipping’ stock from the UK to the Åland Islands, then back into the UK via Post NL (the Dutch postal carrier), claiming the ‘blanket’ invoice value of £14.99 per order.

A snapshot of this can be evidenced by impartial business feedback tool Trustpilot, whom have been capturing customer information regarding this criminal activity - https://uk.trustpilot.com/review/www.officebeaver.co.uk

Ink Jungle were also recognised by VAT fraud website www.vatfraud.org as number 40 in the top VAT fraudster on eBay, surrounded by other offenders from the far East who refuse to charge / collect (just pocket) VAT money owed to the UK public purse. See - http://www.vatfraud.org/blog/ebay-taking-no-action-against-bad-actors/

With an average order value of £40 and c.2000 illegally shipped per day (calculation based on feedback received for both Amazon and eBay), this abuse is estimated to have cost the UK public purse in the region of £5.84 million per year (£35M from 2014 to 2020).