MPs attack Tesco VAT loophole

By LAUREN MILLS, MAIL ON SUNDAY SENIOR FINANCIAL CORRESPONDENT
Updated:

 

MPS are joining forces to try to close a tax loophole allowing some of Britain's biggest companies to avoid paying VAT on items such as DVDs and CDs.

Tesco Extra store Slough

Bob Russell, Liberal Democrat MP for Colchester, has tabled a motion in response to a report in last week's Financial Mail. So far, 24 Lib Dem and Labour and Plaid Cymru MPs have registered support for the motion.

Financial Mail revealed that companies such as Tesco, HMV and WH Smith operate online businesses in VAT-exempt locations such as Switzerland and the Channel Islands so they can offer British consumers cut-price merchandise.

In a letter to Financial Mail, Russell said: 'I was shocked by what your report revealed. Hopefully, this will lead to measures to close this loophole.'

In his motion, Russell warns MPs about the 'involvement of major British companies in multi-million tax-dodging operations', which he says are 'detrimental to British jobs and the economy'.

He also says such activities are 'environmentally damaging because of the need to transport goods to overseas locations and then post them to the UK'.

Vincent Cable, Liberal Democrat Treasury spokesman, is among those MPs supporting efforts to outlaw the tax loophole. 'It's alarming if highly reputable companies like Tesco resort to measures involving tax avoidance,' he said.

'When big companies behave this way it suggests arrogance and a complete disregard for the tax system, which hundreds of thousands of other businesses respect.'

Russell promised to keep up pressure on the Treasury. 'I hope Tesco will discuss with the Chancellor how it can bring itself back into the fold so it does not stand accused of hypocrisy by promoting itself as a great British store while depriving the Treasury of taxes,' he said.

Tesco defended Tesco Jersey which, despite its name, is based in Switzerland. A spokesman said: 'Tesco Jersey offers customers great value on the newest chart films, music and games. We send the stock to Switzerland by road and ferry, the cheapest and most reliable way for our customers. This does not materially affect the carbon footprint of the goods we freight in the business since these vehicles would be travelling anyway.

'Tesco will continue to act first and foremost in the interest of our customers. Tesco Jersey was established to offer our customers competitively priced products and is a very popular service.'

While no Conservative MPs have so far pledged their support to the campaign, Mark Francois, Shadow Paymaster-General, confirmed the party was looking at the issue as part of a policy review. The Treasury and Gordon Brown's campaign team maintained the situation was 'under review'.

• Also today... Tesco to launch comparison site

Most watched Money videos