Price war prompts tax loophole review

THE Treasury is to order a clampdown on a long- running tax loophole after supermarket giant Asda launched a new price war over cheap CDs and DVDs.

The store chain is offering UK customers tax-free music and films by importing them from Jersey minus the 17.5 per cent VAT.

It can do this under the law as long as each individual import is less than £18 a package - which means selling one or two discs at a time to comply.

The move matches Tesco's similar scheme from Jersey which it launched in December, taking advantage of the same tax loophole.

Other companies do the same, including those selling camera film and other items. Amazon, the online retailer, for instance, has been selling from Jersey for a year.

When customers want more than £18-worth it is divided into separate packages so that each individual shipment is less than £18 to keep within the law.

Asda's move could be the final straw for Customs and Excise officials who are fed up at losing millions in revenue from the lost VAT payments.

While Tesco limits its choice to chart favourites, Asda claims its move will include its entire entertainment catalogue of 120,000 CDs, 20,000 DVDs and 1,700 computer games.

Asda will offer customers CDs from artists such as A-Ha, Feeder and Joss Stone for £8.97, compared with £9.77 charged in its 350 UK stores.

Richard Ramsgate, Asda's online director, said: "If it's available in the UK, we'll sell it from Jersey and pass on the savings to shoppers."

Asda admitted it was using a tax loophole, but said it was not breaking the law.

Mr Ramsgate added: "We are offering our customers more choice and saving them the VAT. Because the items are under £18 the VAT is not charged.

"Each item will be packaged separately to comply with the rules, but they will arrive at the same time."

The decision by Asda has angered ministers who have ordered Treasury officials to take action to close the loophole. The Treasury said it was losing £80 million a year through retailers avoiding tax. A spokesman said: "It is not illegal, but it is our policy that we clamp down on aggressive tax-avoidance schemes. We have this under review."

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