Ending de minimis is not a Tariff; it's a Market Correction.

After a decade in the freight industry and a career in online retail stretching back to 1994, I can speak with authority on the real-world impact of tax exemptions designed for a pre-ecommerce world. In recent weeks, I've seen economists and government advisers such as David Henig and Ben Ramanauskas argue that removing the de minimis exemption creates a 'barrier to free trade' that harms UK business and consumers. They point to U.S. President Trump's removal of the policy as evidence that it's a protectionist tactic. This argument is misinformed, and ignores crucial facts.

To understand the truth, we must look at the history of these policies, specifically the Low Value Consignment Relief (LVCR), a VAT exemption phased out by the UK and EU in 2021 (but replaced with similar measures currently under further review).

In May of 1977 The Sixth VAT Directive (1977/388/EEC) came into force. Article 14.1(d) introduced the concept of VAT Exemptions on the importation of certain goods into the EU.  These exemptions were to be granted only to goods that also qualified for exemption from customs duties. The Exemptions were also subject to Article 14.2 which stated that further legislation would later be introduced to clarify the scope of the proposed exemptions.  Even at this very early conceptual stage Import VAT Exemptions had to be implemented by Member States in a manner that prevented any "possible evasion avoidance or abuse".  Article 14.1(d) granted Member States the "option" to not grant exemption if it was "liable to have a serious effect on the conditions of competition on the home market". 

At this time customs borders still existed between all EU Member States, therefore the term 'import' applied to trade between Member States not just trade with ‘third’ i.e. non-EU, countries.  Import VAT was charged on all goods as they crossed the borders between Member States. The introduction of Import VAT Exemptions including LVCR can be seen as part of an overall intention to 'remove restrictions on the movement of goods' and introduce a form of 'free circulation' of goods “between member states” within the Common Market.

In 1983 pursuant to Article 14 (2) and in order to define the scope of Import VAT Exemptions introduced by Article 14.1(d), the Import VAT Exemptions Directive (council Directive 83/181 EEC) came into force.  Together with a number of other Import VAT Exemptions this Directive created LVCR and granted Member States the right to apply LVCR on postal imports, if they wished, up to a value not exceeding 22 Euros.  Article 1 of the Import VAT Exemptions  Directive states that “Member States shall apply the exemptions laid down in this Directive under the conditions fixed by them in order to ensure that such exemptions are correctly and simply applied and to prevent any evasion, avoidance or abuse”.  This mirrored Article 14 (1) of the Sixth VAT Directive (77/388/EEC) - later Article 131 of the Principal VAT Directive (2006/112/EC) - which obligates Member States to apply Import VAT Exemptions in a way that prevents “any possible evasion, avoidance or abuse”. Furthermore a recital to the VAT Exemptions Directive makes it clear that LVCR should be applied by Member States in a manner that is "not liable to affect the conditions of competition on the home market".

The recitals to the Sixth Directive give a clear insight into the original purpose of Import VAT Exemptions including LVCR.  Recital 3 underlines the importance of progress towards "the effective removal of restrictions on the movement of.....goods" whereas recital 4 states that one of the objectives of the Sixth Directive was to abolish "the imposition of tax on the importation and the remission of tax on exportation in trade between Member States" and that VAT should operate in a way that ensures that it is "non-discriminatory as regards the origin of goods and services, so that a common market permitting fair competition and resembling a real internal market may ultimately be achieved".

The June 1980 communication from the EU Commission that proposed Directive 83/181 was EC (COM (80) 258 final/2) outlining the scope of Article 14 (1) (d) of Directive 77/388/EEC, and this communication gives further insight into the intended purpose of LVCR. Below are certain quotes from this communication:

"5. The option that the Member States enjoy under that Article not to grant the exemption from VAT in the cases governed by the regulation is confined to those cases in which the granting of such an exemption would be liable to have a serious effect on conditions of competition on the market"

"6 . Accordingly the Commission proposes for VAT a system of tax relief's that is modelled as closely as possible on the system of reliefs from customs duty. However the objectives pursued and problems encountered in the two fields concerned (customs and tax) are not necessarily identical. The system proposed in the custom field is concerned exclusively with imports from third countries and grants derogations from the common customs tariff one particular purpose of which is to protect community producers. The tax arrangements concern both intra-community trade and traffic from third-countries and moreover reliefs must not be allowed to jeopardise the general objectives of the Common system of VAT. It follows that, while some reliefs from customs duty - granted let us say, because of their negligible economic impact - can be mirrored in the tax system there are others which if incorporated in the tax system give rise to distortions of competition,....Likewise the Commission takes the view that the relief from tax should be more restrictive than that from customs duty" (various examples are given where an exemption from VAT could cause distortion and harm) 

7" "Clearly an exemption upon importation, as opposed to levy of the tax followed by deduction or refund, would be in a number of specified cases a welcome simplification both for administration and for taxable persons"

From paragraph “7” quoted above it is possible to infer the overall purpose of the exemptions from VAT such as LVCR: simplification for administration and for taxable persons. 

Paragraph “6” quoted above shows why the EEC did not apply to VAT exactly the same system of exemptions as it did with customs duty, and clearly shows that the reason for not exactly mirroring the customs duty system was that certain exemptions from VAT could give rise to distortions of competition, and that it was desirable to avoid these distortions.

To balance the objectives in paragraphs 7 and 6 – to provide administrative simplification while avoiding distortions of competition - paragraph 5 explains that the right not to grant exemptions is confined to cases in which exemptions are liable to cause distortions of competition.

From these 3 paragraphs taken together, it is abundantly clear that the purpose of LVCR was to provide an administrative simplification that nevertheless did not result in a distortion of competition.

Similarly a second communication from February 1987 (COM (87) 21 final) proposing amendments to LVCR legislation clarified further the intended purpose of the relief:

"Despite the obvious practical advantages of maintaining identical reliefs for VAT and duty purposes it is important to bear in mind that the Council has previously decided (again in accordance with the provision of Article 14(1) (d) of the 6th VAT Directive) that certain relief from duty should not be extended to VAT in order to avoid distortion of competition"

"It must be borne in mind that VAT exemptions apply not only to import from third countries but also to movements of goods between Member States and it is desirable in certain cases, to differentiate between these two different types of imports. In particular the Commission considers that the present optional exemption for imports of negligible value should be made compulsory for items imported from one member state to another in order to provide a small but welcome gesture towards community citizens."

As I have demonstrated VAT and duty import exemptions were originally intended for goods of negligible value for administrative simplicity, primarily for trade within the EU's Single Market. These exemptions were never designed for large-scale, cross-border retail by multi-billion-pound companies. The risk of these exemptions being abused to gain a competitive advantage and distort the market was clear and recognised from the outset. Today's massive online mail order trade can hardly be described as 'negligible' and flies in the face of the exemption's original purpose. 

But there's an even more fundamental issue. Until we have a single global economy with no borders or tax differences, nations must protect their domestic businesses from unfair competition. Just as the EU recognized the risk to the Single Market of exemptions from import tax, the UK must do the same. 

The world has changed dramatically. Cross-border online mail order is now a significant part of the economic landscape, and it is unacceptable that UK businesses, which employ our citizens and contribute to our tax base, must compete with overseas retailers who sell into the UK free of VAT and duty.

The original justification for these import exemptions is now technologically obsolete. In the 1970s, manual administration for low-value imports was a burden. Today, with modern technology, there is no excuse for not collecting tax on every import. This would put UK retailers on a level playing field.

Consider this: a UK business importing a container of goods from China and selling them wholesale must pay import VAT and duty. Yet, a Chinese retailer can sell those same goods directly to UK consumers without paying a penny of VAT or duty. Removing this exemption isn't a tariff; it's correcting a market distortion.

Furthermore, ending this exemption would not only raise much-needed tax revenue but also remove competitive barriers that hurt UK businesses. The idea that this is a tax benefit for UK consumers is economically illiterate. The benefit is selective, and if removing tax were always good for the economy, we could simply scrap all taxes—a clear absurdity. If the goal is to help UK citizens, it should be done through the tax system, not by subsidizing foreign retailers at the expense of fair competition.

As for the supposed catastrophic friction caused in the USA by ending de minimis it is worth bearing in mind the US had a very high de minimis ($800) so more shipments came within it's ambit. Additionally introducing a huge change in policy at short notice, with no tech infrastructure was bound to cause teething problems, yet even so, only last week I saw proof of goods being sent from the UK to the USA using the new Delivered Duty Paid service and they arrived in 3 days. The friction is not there.

NB : China has no de minimis for consumers buying online. All goods imported into China are subject to duty and VAT.