Guest blog: on victory for the UK campaign against VAT abuse

We just wrote a blog about a legal ruling that will result in the closure of abusive Value Added Tax schemes run out of the Channel Islands. Richard Allen, who led the charge on behalf of the RAVAS (Retailers against VAT Avoidance Schemes) and small businesses that have fallen victim to the Low Value Consignment Relief (LVCR) abuse, has written us a guest blog, as follows.

“What is starkly clear is that if RAVAS had not intervened in the Review, it’s likely the UK would have lost the legal challenge. It’s clear now why the Channel Islands fought so hard to keep us out of the hearing (and we did not get to see what the Channel Islands businesses had put in as evidence so we couldn’t counter what they had said.)

We soundly defeated the Channel Islands who were using PriceWaterhouse Coopers and had spent over 400K ! There were also 30 lawyers in the room representing various major retailers and CI firms. It was David and Goliath stuff.

Our witness statements were crucial to our success. At one point, when Jersey’s QC said that circular shipping did not take place, the judge laughed and said “The RAVAS evidence would seem to suggest otherwise!”.

All that was under consideration at this hearing was the legality of the action taken by the UK to exclude the Channel Islands from mail order. Channel Island retailers are claiming that the Judge ruled that LVCR use was legitimate, but that is not what he said. He said a legitimate use was not tax avoidance. Circular shipping and order splitting are abusive and without those practices the trade cannot function.

The Channel Islands stated in the hearing that they were victims of discrimination under EU laws where member states must treat other EU countries equally: the concept of ‘fiscal neutrality.’ However, Justice Mitting ruled that fiscal neutrality only applied between member states, and not between an EU state and a non EU country, and he cited existing case law to prove this. He also ruled that the UK could exclude mail order goods if it wanted to as it had the power, and could also discriminate against the Channel Islands if it wanted to.

HMRC argued very well that LVCR was being used for avoidance and was being abused; and they stated that there was an EU complaint and that the UK was obliged to act. Privately, HMRC officials noticed the weakness of the Channel Islands’ arguments, in that their claim that LVCR wasn’t important to their business seemed at odds with their claim that everyone would have to close down if LVCR was removed! The suggestion to the court that orders were split into smaller packages only to make packing easier (and not to gain LVCR) was also highly suspect.

The last day and a half had seemed to go really badly for RAVAS/HMRC . It seemed to be going so badly that I even wrote my defeat speech during the middle of the last day. Then, as Justice Mitting read the very last part of his Judgement he ruled against the Channel Islands. I was completely surprised. I understand Judges like to play these mind games. He fooled me!

As Judge Mitting put down his paperwork, having concluded his judgement ,he smiled at the assembled army of lawyers and said “Does anyone want anything kept confidential? ” The QC for Jersey responded in a rather despondent tone “Only the result....”