July 22 2008

In-store kiosks test Channel Islands VAT rules

Customers can use in-store terminals to order up out-of-stock titles for delivery from CD tax haven.

Online retailers in the entertainment sector have long taken advantage of the tax loophole that allows items ordered from the Channel Islands to be delivered to the mainland VAT-free – so long as they cost under £18.

Now HMV is rolling out in-store kiosks across the 230-branch chain that, as well as offering the chance for customers to get hold of digital downloads on the spot, also allow shoppers to place home delivery orders for out-of-stock items. These are then delivered to the customer's home from the Channel Islands, free of VAT, rather than from the company's mainland distribution centre. Woolworths has similar terminals on test in three of its stores.

The kiosk delivery loophole was first picked up by the Guardian on Saturday. Despite trying hard to cast HMV in a shady light, however, the company has been hard at work pointing out that the kiosks have not been designed specifically to take advantage of the VAT rule. Rather, a spokesman told the Press Association, the 'HMV Delivers' kiosks simply offer the customer the convenience of ordering out-of-stock titles in-store for delivery direct from the company's internet fulfilment centre in Guernsey.

"We expect this to remain an extremely marginal channel for sales, as the kiosks we are introducing will be to drive sales of fast growing digital downloads," HMV maintains.

But what exactly constitutes an out-of-stock item? Could there be scope for a retailer to offer its full, Channel Islands-based online inventory in-store via a kiosk and still get a VAT-free break on the sub-£18 items? Or could the arrival of kiosks like this be the last straw, the move that pushes the Treasury into tightening up the rules once and for all?

by Sarah Clark (Web Editor)