Calls for Reeves to scrap customs ‘loophole’ used by Shein in budget
Retailers would benefit if the UK scrapped or reduced import relief for low-value goods in the upcoming budget, according to experts.
There has been much speculation that the Chancellor will scrap the low-value import VAT relief that lets goods under £135 enter the UK duty-free (parcels above that value can incur customs duties of up to 25 per cent).
Rachel Reeves would be following in the footsteps of the US – which scrapped its ‘de minimis’ rule earlier this year – and the EU, which has pledged to scrap its relief by 2028.
“It’s a rule that’s been subject to much abuse, hence the discussions to scrap it,” Rob Janering, VAT Partner at Crowe said.
“The removal… would be a positive move for the UK’s retailers,” he added.
Retailers have voiced strong concerns that the loophole leads to ‘dumping‘ of low-cost goods in the UK, undercutting their prices.
“There is also widespread abuse of the system through incorrect valuations, sellers not registering for UK VAT and issues with safety regulations,” Janering said.
Just under £6bn of cheap imports entered Britain last year without paying customs duties, a Sky News investigation found.
Shein and Temu in particular have capitalised on the rule, with imports up 53 per cent year on year.
“As well as a missed duty opportunity, these imports are often evading many millions of VAT liabilities, aside from the loss of High Street sales… the figure will be much higher if nothing is done,” British Independent Retailers’ Association CEO Andrew Goodacre said.
‘High’ likelihood of rule revision
Analysts at BDO estimate that removing the customs loophole was highly likely.
“It would be little surprise… if and changes are implemented to support UK based retailers competing with retailers based in China and other low-tax jurisdictions.
In April, Reeves announced a review of the scheme, arguing that the government was “against the dumping of cheap imports of products that undercut British retailers”.
“Retailers can see through the actions we have taken today around low value imports that we are absolutely standing up for the British high street,” she said.
BDO analysts added that it “remains to be seen” whether a change would reduce or abolish the relief.
The British Home Enhancement Trade Association, for example, has called for a reduction in the threshold for the duty from £135 to under £40.
However, any change to the rule would increase administrative and financial costs associated with moving goods into the country; the Federation of Small Businesses has warned of the potential for the exemption’s elimination to push up prices.
Lisa Kay, founder of UK-based Sole Bliss, said that the end of de minimis in the US has created a “much greater” administrative burden.
“Previously, we could ship individual orders directly to customers with minimal customs complexity.
“Now, every package requires full customs documentation and tariff payments, regardless of value,” she said.