The government is to change the tax rules that have allowed retailers to avoid paying VAT by sending goods from the Channel Islands.
Low Value Consignment Relief (LVCR) will not apply to goods sent from the Channel Islands to the UK from 1st April 2012.
The tax relief has been used increasingly in recent years by companies selling CDs and DVDs online, such as Play.com, Tesco and Amazon. The government said the relief was now costing £ 140m a year.
The maximum price of the goods allowed under LVCR was cut from £ 18 to £ 15 on 1 November following an announcement in the Budget in March.
These reforms will ensure that UK companies, especially small and medium-sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands, said David Gauke, Exchequer
Secretary to the Treasury.
LVCR was originally established as a VAT exemption for goods coming from outside the EU. The idea was to prevent EU members having to collect small amounts of VAT, when collecting it would cost more than it was worth. The issue has been that the Channel
Islands are treated as being outside the EU for VAT purposes.
The government said that LVCR will continue to apply to goods coming from other countries outside the EU.
Jersey's Economic Development Minister, Senator Alan Maclean, said more than 1,700 people were employed in the fulfilment industry across the Channel Islands.