Retail horticultural businesses operating out of the Channel Islands will have their VAT relief reduced from £18 to £15 in November this year.
The tax loophole, known as Low Value Consignment Relief (LVCR), was originally created to protect the islands' cut flower industry but has resulted in many large internet mail order companies selling CDs and DVDs setting up warehouses on the islands to avoid paying VAT.
Reacting to the plans, the Forum of Private Business, which has lobbied the Government to abolish LVCR, said the reduction to £15 was not enough to stop such companies taking advantage of the tax relief.
One business impacted by the changes, Flying Brands, operates several gardening outlets from the Channel Islands. Finance director Anthony Gee said: "We are pretty confident that the reduction from £18 to £15 won't have a material impact on our business because most of the plants we sell are below £15. But we are wary of what the chancellor might do in the future."
Nurseries are not affected. Guernsey Clematis Nursery owner Raymond Evison said: "As most of our business is that of a wholesale grower of young clematis, the change will not affect us.
"We do have a retail mail order business, but this is a small part of our turnover and I would hope that the quality of our plants would speak for themselves and that this part of our business would not be really affected."
Pressure group Retailers Against VAT Avoidance Schemes claimed that many retail groups will not survive unless the Government acts to "prevent further damage to the UK retail sector".
Founder Richard Allen said: "While the LVCR threshold that allows goods to enter the UK VAT free will be reduced from £18 to £15, this really isn't going to have much immediate relief for those retailers suffering the daily reality of a distorted internet retail market."
- Peter McDermott, managing director, Lead The Good Life
"The move from £18 to £15 is likely to have marginal impact on businesses that operate from the Channel Islands. The changes are more politically motivated rather than practical and the main offenders in the CD, DVD and vitamin arena should be dealt with outside of the horticultural sphere. To affect the horticultural industry too is a very blunt way of dealing with certain businesses that are clearly abusing the scheme.
"The LVCR scheme was originally implemented for the benefit of speedy deliveries for cut flowers and perishable goods, so young plants should still benefit as long as they are grown in the Channel Islands.
"Cut flowers, live plants and food products such as Jersey Royals and fresh cream should be supported, while other products should quite rightly be given far more scrutiny. A further reduction will impact progressively and for the LVCR to be reduced below £10 would do real harm to the current operators."
- Derek Jarman, owner, Hayloft Plants
"This is bad news for companies such as Thompson & Morgan, Flying Brands, Suttons Seeds, Jersey Plants Direct, Lead the Good Life/Garden Bargains and Mr Fothergill's, but good news for all the small UK nurseries, such as Hayloft Plants, that pay VAT on their mail order sales. Well done HM Treasury."