Low Value Consignment Relief is a measure that has allowed supermarkets and online stores to purposely avoid paying VAT on items such as CDs, DVDs, computer games and beauty products by routing them through the Channel Islands.

The Relief was originally designed to speed up the transit of low value perishable goods through the postal system, but was hijacked by large retailers to slash their online prices, effectively allowing them to significantly undercut smaller, independent retailers.

It will be ditched by the government as of April 1 2012.

Jane Bennett, head of campaigns at the lobbying group Forum of Private Business says, ‘Virtually all the main players in the online industry mail CDs and other similar items like Blu-ray discs from the Channel Islands to customers. This totally unfair loophole has allowed them to totally dominate the market and put thousands of small, independent traders out of business.

‘The announcement will mean at long last a level playing field in the market, and the remaining independent record shops will be able to compete with the big boys on equal terms again. It’s excellent news for the high street.’

Other goods which have exploited the loophole include flowers, customised greeting cards, batteries, contact lenses, perfume, vitamins and printer cartridges.

Richard Allen, who has been campaigning on the issue since 2005 before joining Retailer Against VAT Abuse Scheme as their spokesperson in 2009 adds, ‘The removal of this major market distortion should be welcomed by all UK businesses that wish to trade online.

‘The VAT loophole is not only contra to the basic principles of EU law, but is also contra to any sense of fair play and a ‘moral market’.’