The loophole has been created by Low Value Consignment Relief (LVCR), which allows individual goods under £18 to be imported into the UK without the extra cost of VAT. Tesco, Amazon and HMV are among those who have relocated some operations to the Channel Islands.
More often than not, goods are being manufactured in the UK, exported to the Channel Islands, sold online then imported back into the UK without the VAT. Meanwhile, smaller high street retailers who can't match these artificially low prices are being driven out of business.
Although Chancellor Gordon Brown promised to look into the issue in his March 2006 Budget speech, any evidence of action has yet to be seen. The FPB is urging MPs to sign up to the EDM put forward by Andrew Love MP, Chairman of the All-Party Parliamentary Small Business Group (APPSBG).
Many independent retailers have signed up to an open letter to government calling for the loophole to be closed by lowering the threshold on goods that can be imported without VAT from £18 to £7.