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The chancellor has announced VAT changes to close a tax loophole, which was used by large companies to retain low prices of DVDs and CDs. The cost to shoppers is expected to reach a minimum of £100 million annually.

From April 2012, the tax loophole will be closed, which will have an effect on prices of a number of goods, including contact lenses, computer games, CDs and DVDs. Presently, items which cost below £15 are allowed to be imported to the UK without VAT, which allows businesses to keep prices low. A number of large companies like Boots, Sainsbury’s, Asda and Tesco outsource to the Channel Islands, where existing warehouses export the goods cheaply. Amazon will also be affected by the move, as VAT will be added to its products.

The tax loophole has been a point of contention for many small businesses that couldn’t compete with the low prices of large companies exporting from the Channel Islands. The move, however, comes too late for those businesses that were forced to close as a result. As the loophole has been closed, it is likely that VAT will be added to commodities, which at 20 per cent will be a significant increase. However, a spokesman for Tesco stated that no plans had been made to increase prices, preferring to remain competitive.

In addition to being welcome news for small businesses, the move will earn more than £100 million for the government funds. The row over the tax loophole has raged for decades, but the chancellor, George Osborne has now settled the matter fairly.

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