10

Low Value Consignment Relief (LVCR): “Show me the Money!”

show-me-the-moneySomething tells me that Jersey and Guernsey just aren’t making the most of Low Value Consignment Relief (LVCR).  Yeah, sure there are a few select individuals that have set themselves up for a very comfortable retirement – Play.com, Moonpig and MyMemory being ones that spring to mind.  But, with the barriers to entry for creating an e-commerce store so low, there must be a number of niche areas yet to be explored. 

Selling low value requires high volume

The problem with LVCR can be the first two letters.  “Low value” has to balance with “high volume” to make an attractive business plan.  Say your average product sells at £10, on which you make a profit of £4.  This means you must sell 10,000 items per year to make up the average salary of a finance sector worker!  That’s more than one product per hour, every single hour of every single day.  It sounds off putting, and in many respects it is, but remember you are not just restricted to selling LVCR products on your website.

LVCR products as complimentary goods

complimentary-goodsWith the popularity of Google Merchant Centre and other comparison shopping tools, price is more important than ever.  If you can entice a customer to buy an ink cartridge because you sell it cheaper then anywhere else, and then go on to sell them a laser printer, then you’re on to a good thing!

We all know it costs a more to attract new customers than to retain old ones, so just acquiring an email address for marketing purposes has some worth.  Supermarkets sometimes sell baked beans and loafs of bread at ridiculously low prices.  Why do they do it?  Well, these “loss leader” products are thought to attract new customers and make them believe that all prices are this low.

LVCR itself might not make huge profits for you but are their products that you can sell for under £18 to draw in new customers and then cross sell to them your more expensive offerings?

New products to market

Channel Islands of MoneyThe channel islands e-commerce entrepreneurs should always have their ear to the ground for emerging products that might fit the LVCR model  (see my previous blog post).  Remember that a newly launched product is likely to have a higher price tag on launch than when it’s life cycle approaches maturity; The products to look out for might not necessarily have a selling price of under £18 to start off with.  Remember, ideally you want to be selling towards the top of the £18 mark to make the most of the VAT saving.  If a product launches with a RRP of £30, six months down the line you could be selling it for £18?  It certainly sounds like an attractive idea from a consumer point of view.

Idea Generation

Now… go forth and brainstorm!  Think of products that you could start selling.  Let’s give our islands an alternative to the finance industry!

0

Comments 10

  1. You should be aware of the 2006 Halifax Judgement which makes transactions that have no other purpose than VAT avoidance illegal under EU law. The principle applies where the “essential aim of the transactions concerned is to obtain a tax advantage”. For instance shipping goods to an offshore location outside of the EU to supply your customers in the EU VAT free. This may seem irrelevant if you are in Jersey but even Play.com have a UK operation with UK offices and staff.

    Reply
  2. Thats the standard line but its not correct. Firstly LVCR was not introduced to benefit Jersey residents or business. It was originally allowed to stop horticultural goods going rotten in customs (the idea was it would speed up transit) An administrative relief is not just to do with tax collection. There are all kinds of administrative issues. Secondly the UK is under an EU obligation to disallow the relief if it is abused or distorts competition in the EU. Play.com’s use of this relief is an abuse as it involves bringing goods out of the EU to then send them back VAT free. Whilst there is nothing the UK can do to stop Play.com the UK can disallow the relief. Why they haven’t is a mystery but knowing how totally useless HMRC are that’s not a surprise.

    Reply
  3. Denis Galleap

    Show me the money indeed! Nearly ten years of thinking and I’m still no closer. Thanks for the tips though Phil.

    Reply
  4. wish i’d got in there with memory keys but i think that is too late now. there will be a lot of new products coming out to support smart phones though.

    Reply
  5. You need to point out that selling EU originating products using offshore LVCR arrangements is a listed tax abuse and would result in a challenge by HMRC.

    Reply
  6. Thanks for the comments Lawman.

    As I understand it Play.com, a company started by three Jersey residents, began selling goods under the

    Reply
  7. At some point they will have to correct their breach of EU law as its a legal obligation. Its a tragedy that this was allowed to happen as it has two effects . It damages UK business and then when it closes down it destroys Channel Islands business. The same thing has happened before. The Keiller Marmalade business was a big employer in Guernsey when Guernsey was exempt from Sugar Tax, but when the exemption was scrapped they left the Island as there was no point being there. What use is a fulfilment industry in Jersey if there is no VAT saving ? Its a chocolate teapot.

    Reply
  8. Lawman – you are clearly very passionate and knowledgeable about LVCR! I respect your opinion but being a Jersey resident with a career in e-commerce I’m of the belief that you have to take advantage of the good cards that life deals. We will see what the future holds – if the law is tightened for the Channel Islands then the industry will flourish somewhere else.

    Reply
  9. I couldn’t agree more. If those half wits in the UK Treasury in the UK can’t police LVCR correctly and protect UK mainland business from VAT abuse good luck. However I don’t agree with your view that you will just be able to go elsewhere once this is closed down for Jersey.If its ruled abusive its abusive from any location into the UK/EU.

    Reply
  10. Interesting site by the way. Nice google tips

    Reply

Write a Comment

Facebook

Twitter

LinkedId