The £30m "circular shipping" horticulture mail order market from the Channel Islands is in jeopardy after the Government closed a loophole allowing importers to the UK mainland to not pay VAT.
Relief from import VAT known as low value consignment relief (LVCR) on goods under £15 in value will end on 1 April 2012, exchequer secretary to the Treasury David Gauke announced last week.
Prices could go up by almost 20 per cent because companies which use the Channel Islands to avoid VAT will now have to pay, with sales hit accordingly.
Former Lead the Good Life managing director Peter McDermott said a strong challenge was inevitable. "Quite a few businesses have a lot at stake and are going to appeal to get the exemption extended or thrown out."
Most of the UK's main mail order plant companies use the Channel Islands, with Thompson & Morgan, Flying Brands, Jersey Plants Direct and Gardening Direct among bigger players. Plug bedding packs form much of the gardening trade.
Companies such as Play.com, selling DVDs, may use non-EU countries such as Switzerland as exporting bases to avoid VAT, but McDermott said live plants will suffer too much if they travel from so far away.
"Horticulture businesses that operate from the Channel islands will be at a disadvantage," he said, although he admitted the move created a "level playing field".
Hayloft Plants director Derek Jarman, who sells by mail order from Worcestershire, agreed. Jobs lost could be relocated to the mainland and carbon emissions from shipping would reduce, he added.
JR Jersey Horticulture managing director Joel Richardson said: "The hardest thing is that bulk of mail order catalogues are printed, so prices are set for the year."
Although at the moment it's business as usual, he warned: "There might be a legal challenge by affected industries in Jersey and Guernsey by the zeroing of LVCR."
Richardson, who is building a new glasshouse at St Martin, Jersey, said the short time frame had caught growers unaware but he believed the bedding industry will survive the VAT introduction.
"Jersey has climatic advantages. We can knock a week off production-wise. As a producer we'd like to think our clients are here for the goods. For low margin business that use circular shipping there is going to be an impact."
The 'circular shipping' trade of plant material from the UK to be packed in the Channel Islands and immediately sent back to the UK consumer avoiding payment of VAT on goods up to £18 + P&P (£15 + P&P from 1 November 2011) has been going on since 1983. The saving to large retailers is £3.83 per unit, minus extra management and packing/shipping charges.
Growers reflect on the impact on business of VAT introduction
Paul Ingrouille, production manager, Guernsey Clematis
"We feel that this is not aimed at horticulture companies, but those that rely on circular shipment are going to suffer. Prices will go up by a large portion."
Derek Jarman, director, Hayloft
"It is good news for the UK economy, in that an extra £140m of VAT per annum will be collected for spending on hospitals and schools, and good news for the environment."
Peter McDermott, Former Managing Director, Lead The Good Life
"If I was on the receiving end I would say this is a catastrophe but the other argument is that the consumer is still going to buy good product if it is presented well."