Online stores such as Amazon, Asda, Boots and Tesco may have to put up prices of CDs on their online stores following the decision from Jersey to ask the companies to move their distribution centres off the island.

Currently the websites sell CDs and DVDs from Jersey in order to avoid VAT in the UK and therefore offer cheaper products like CDs and DVDs to customers.

However the Jersey government is worried about the effect on the local economy and its reputation with the UK government.

“The negative publicity is focusing on existing UK companies that are switching the distribution of their DVDs/CD's through the Channel Islands to take advantage of the Low Value Consignment Relief (LVCR - the EU approved mechanism for VAT exemption)”, it said in a statement.

The report goes on to say “The selling structure which is adopted by the retailer is little better than a sham. The vendor, or the vendor's parent company, and the purchaser are both located in the United Kingdom. The goods, or some of them, come from the United Kingdom, and are shipped to Jersey for a “sale” before being shipped back to the United Kingdom for delivery to the customer. Jersey's integrity in financial and commercial matters cannot but be damaged by the use of the Island as part of such a selling structure”.

The EU's Low Value Consignment Relief (LVCR) rules any item bought for less than £18 can be individually imported to the UK from the Channel Islands without the imposition of VAT.

As well as its impact on UK tax revenues, LVCR is also affecting small business in the UK, which have called on the Treasury to close the loophole.

Time limited consents will be issued for a maximum of 12 months from the
date of this policy.

The news is likely to mean that CDs bought online will become VATable again puting up to £1.20 on the price of a CD.