Treasury Issues Incorrect Information on Import Tax Relief Mechanisms

As the Government undertakes a review of Online Marketplace regulations and the de minimis threshold, it is concerning to observe that, as with previous issues surrounding Low Value Consignment Relief (LVCR) and the Channel Islands, Ministers continue to make public statements regarding the operation of import tax reliefs that do not accurately reflect the current legal and operational framework.

The situation concerning LVCR presents a closely related precedent. The import VAT exemption—originally set at £18 and later reduced to £15—was systematically exploited by sellers operating through the Channel Islands to supply goods to UK consumers free of VAT. Despite clear evidence of widespread abuse and market distortion, officials consistently provided Ministers with inaccurate briefings regarding both the extent of the problem and the available legislative options to address it.

While it may be tempting to attribute such inaccuracies directly to the Minister, it is important to recognise that decisions on complex tax policy matters are heavily informed by the advice provided by senior officials within HMRC and the Treasury. In practice, HMRC plays a leading role in shaping VAT policy, even where formal responsibility lies with the Treasury.

This week, I reviewed correspondence from Daniel Tomlinson MP, Exchequer Secretary to the Treasury, addressed to Stuart Andrew MP. The letter responded to a constituent enquiry concerning the removal of the £135 de minimis exemption. The constituent in question is adversely affected by overseas sellers (mainly from China) who utilise the exemption to sell directly to UK consumers without incurring import VAT or duty—placing UK-based traders at a competitive disadvantage.

In his response, Mr Tomlinson made the following statement:

"Your constituent proposes the removal of the de minimis threshold for UK customs duty. Under our current low value import arrangements, consignments valued below £135 from any overseas retailer can be imported into the UK without incurring customs duty. However, VAT is due on all imports into the UK, regardless of their value, meaning that imported goods pay the same VAT as those sold on the high street"

The last sentence (in bold) is factually incorrect. The accurate position is as follows:

Under current UK legislation, VAT is due on all imports, regardless of value. However, the extent to which VAT is actually collected depends on the nature of the transaction and the parties involved.

Where goods are sold via an Online Marketplace (OMP) and the seller is located outside the UK, the OMP is legally required to collect and remit VAT at the point of sale. Despite this obligation, there is evidence that some overseas sellers are circumventing the requirement by establishing UK-registered entities. This creates the appearance of domestic presence, thereby shifting the VAT collection responsibility away from the OMP and undermining the intended enforcement mechanism.

In cases where goods are sold directly to UK consumers by sellers based outside the UK, those sellers are required by UK law to register for VAT and account for it accordingly. However, as UK jurisdiction does not extend to overseas entities without a UK establishment, enforcement is limited. Unless such sellers voluntarily register for VAT, no VAT is collected, resulting in a loss of revenue and distortion of competition. It is reasonable to assume that entities with no physical or economic presence in the UK are unlikely to comply voluntarily.

This situation highlights a structural weakness in the current VAT framework for cross-border e-commerce and suggests a need for further policy consideration to ensure equitable tax treatment and effective enforcement.

The question arises as to whether the misstatement in the Ministers response stems from a genuine misunderstanding within the department or reflects a reluctance to confront a policy issue that may require difficult or politically sensitive decisions. This pattern is not without precedent. Between 2005 and 2011, similar issues arose in relation to the abuse of Low Value Consignment Relief (LVCR) via the Channel Islands. At that time, officials repeatedly advised Ministers that mail order goods from the Channel Islands could not be excluded from the LVCR exemption—a position that was subsequently proven to be incorrect.

In the current environment, where access to accurate information is readily available through digital tools and artificial intelligence, it is increasingly difficult to justify responses from government departments that fail to address substantive questions or rely on language that obscures rather than clarifies. Public confidence in government communications depends on transparency, precision, and accountability. The era of obfuscation and deflection must give way to one of informed and responsive governance.

Citizens and stakeholders deserve clear, accurate, and timely information. Anything less risks undermining trust in public institutions and impeding effective policy development.