THE UK government will not be taking any immediate action to close a Channel Islands tax ‘loophole’. The legitimate benefit allows retailers to sell goods such as CDs, DVDs, computer games and contact lenses under the value of £18 VAT-free from the islands back to the UK through websites.

The National Audit Office has backed HM Revenue and Customs’ assessment that the overall risk to VAT income from e-commerce is currently low.

Deputy Commerce and Employment minister Carla McNulty Bauer said she was pleased with the findings of the report.

‘This is good news for our local bulk mailers exporting to the UK,’ she said.

About 45m. commercial packages are imported by post into the UK each year from areas outside the EU, including the Channel Islands.

Deputy McNulty Bauer said that while the report was good news in the short term, the UK Government would continue to monitor businesses that have restructured their activities to take advantage of the tax break and would still consider changing the law if it felt that it was being abused.

She warned companies against coming to the island to exploit the £18 de minimus export benefit.

‘In both Guernsey and Jersey, we want to protect local business.

‘We are certainly not interested in businesses relocating here purely to take advantage of VAT de minimus.’

Last year, 22m. Britons shopped online – buying everything from CDs and electrical goods to food and holidays. Sales over the Internet trebled to £18.1bn from 2002 to 2004, with a further surge around Christmas 2005.

More than £1bn was collected in VAT from 2005 to 2006 on

e-commerce goods and services. This is expected to grow to

nearly £60bn a year by April 2010.

‘We must always support purchasing locally wherever we can, but it is also right that customers should have a choice to buy whatever they want and from where they want.

‘Likewise, it is important for retailers to meet customers’ needs and demands and provide the right products at the right price and good customer service to ensure that people come back,’ said Deputy McNulty Bauer. ‘This applies not only to high street retailers but also companies that are selling over the Internet.

‘It is becoming easier and easier to access products and services from all over the world and it is good to note that the NAO report has recognised the growth of globalisation and that everyone must work with and not against the trend.’