The LVCR was originally introduced to ease administration costs associated with the export of flowers from the islands. However, the LVCR tax loophole began to be used by mail order companies and, with the advent of the internet, by online retailers, including leading UK-based online video retailers such as Amazon and Play.com to offer CDs and DVDs at a lower price than their High Street competitors. This was a major contributor to the success of UK online video retail which now accounts for around 30% of all DVD sales in the UK, twice the market share of the sector in other European markets (to which such retailers are also permitted to sell tax-free). However, in recent years larger well established retailers selling more than just videos, such as the UK-based supermarket giant Tesco, have also sought to exploit the tax haven, thus widening the loss to the UK Treasury.

Such online retail services already prompt consumers to split transactions exceeding the current £18 limit and thus the impact of the reduction in November will only be felt on single products priced between £15 and £18.

The average price of a DVD in the UK was £8.94 in 2010, far below the LVCR threshold, and even Blu-ray Discs are expected to average below the £15 mark by the end of 2011. The lowering of the LVCR is therefore unlikely to impact the UK video market in any significant way. However, the decision to narrow the loophole does table the issue for future parliamentary discussion.