Large retail companies that have operations based in the Channel Islands will no longer benefit from relief from VAT on products costing less than £15, meaning they will not be able to sell cheaply on the mainland in future.
Internet retailers such as Amazon, Play.com, Moonpig , HMV and Tesco have distribution warehouses in the Channel Islands. This enables them to take advantage of the tax relief and sell their products far more cheaply than smaller competitors.
However, since the number of companies distributing goods from the Channel Islands increased "dramatically", the relief now costs the Government around £140 million a year.
The tax relief, known as the Low Value Consignment Relief, will cease to be available from 1 April next year.
David Guake, Exchequer Secretary to the Treasury, said: "These reforms will ensure that UK companies, especially small and medium-sized enterprises, can compete on a level playing field with those larger companies with the resources to set up operations in the Channel Islands.
"We are also protecting a significant amount of tax revenue.
"By making these changes, we are striking the best possible balance between the costs of collecting small amounts of VAT and protecting the interests of UK taxpayers and businesses."
The Forum of Private Business welcomes the change claiming that the tax break had "put thousands of small, independent traders out of business."
It added: "It means 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."
However, Jersey's Economic Development Minister Senator Alan Maclean worries what impact will be made on the 1,700 people employed in distribution warehouses on the islands.
He said: "The change will affect hundreds of livelihoods across the Island and in view of this impact, we are taking legal advice in conjunction with members of industry. We would not want discrimination against the Channel Islands to go unquestioned when it has the potential for a severe impact on islanders."
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