The LVCR scheme allows goods imported to the UK from non-EU territories to be sold free from value-added tax (VAT) if they are priced at less than GBP15 since November 1, down from GBP18 previously. The scheme has encouraged many businesses to set up warehouses in the Channel Islands from which they ship items such as CDs and DVDs to the UK, and some argue that this has contributed to the demise of some traditional 'high street' retailers.

However, under legislation announced by the UK Treasury on November 9, LVCR will continue to apply with the new GBP15 threshold to commercial supplies from other non-EU jurisdictions, and the Channel Islands feel that they have been unfairly singled out by the new measures.

In response to the announcement, both governments in their proposed policy responses have announced that they will challenge the decision. The Guernsey government has said it would continue to engage in dialogue with HM Treasury to represent the island in opposition to the blanket removal of LVCR.

On behalf of Jersey, the island's Minister for Economic Development, Alan Maclean said: “The change will affect hundreds of livelihoods across the island and in view of this impact, we are taking legal advice in conjunction with members of industry. We would not want discrimination against the Channel Islands to go unquestioned, when it has the potential for a severe impact on islanders.”

Whilst continuing negotiations with HM Treasury, the two territories said they would be working with their respective fulfilment industries to aid them to overcome the decision, but admitted that the removal of the concession would nevertheless have a severe impact on employment, which would require government support.

According to a statement from the Guernsey government: “The States are in discussion with companies to investigate and identify ways in which business models can potentially be adapted to take account of the change/removal of the VAT threshold within a short transition time. The Commerce and Employment Department has been working to assess the impact on businesses, the postal and freight sectors, as well as the economy, and will continue to work with businesses in order to mitigate the negative impact of this change in the UK’s domestic tax arrangements.”

Guernsey’s Chief Minister, Deputy Lyndon Trott, said that the impact of this change is likely to be "significant" for the island:

" We now have two priorities. First, to continue working with businesses in order to mitigate the negative impact of this change. Second, to continue the ongoing dialogue with the UK government so that mechanisms can be put in place to cope with the increased administration that these changes will impose on the postal and customs services.”

“It is of particular concern that this change has been targeted solely at the Channel Islands and on all products. The States of Guernsey has worked with the industry to restrain activity in the sector through the development of a code of conduct and self-regulation. The success of this work had been previously recognized by the UK government.”

“The Treasury’s changed policy position on LVCR fails to differentiate between those businesses that have minimal footprint in the island’s economy from indigenous businesses. The short time scale and blanket approach are particularly concerning. We have made our views on this clear to HM Treasury, and we are working with [our] counterparts in Jersey to continue to do so.”