Both Jersey and Guernsey have said they will clamp down on companies such as Amazon, HMV and Tesco that use the Channel Islands as a base to sell goods worth less than £18 to UK consumers. These retail giants have picked up a large chunk of the online DVD and CD market as UK consumer reap the benefit of cheaper prices. HMV is reportedly selling a massive 100,000 VAT-free CDs to the UK a week through its website.

But the loophole is having an effect on tax revenues. Government Minister John Healey has been actively lobbying against the tax break and told a Treasury sub-committee meeting in February 2005 that the Treasury is losing £80m a year in revenue from the activity. He said this loss is expected to rise to £200m in the next couple of years.

Other organisations have also complained saying it is badly affecting small companies in the UK, including the Forum of Private Businesses, the Association of Independent Music (AIM) and the British Phonographic Industry (BPI)
The Jersey government said it now fears that the resultant negative publicity 'is in danger of undermining the Island's good international reputation and integrity."