CDs are sold VAT-free because they are valued at less than �18

Companies in Guernsey and Jersey can export goods below a certain value VAT free and the UK Treasury has threatened to stop abuse of the system.

Now a parliamentary motion has been tabled calling for action.

Under EU law, retailers operating out of the EU can sell products valued at less than �18 to customers in member states without charging VAT.

Action has to be taken Vince Cable, MP

That has led to an increase in mail-order companies setting up in the Channel Islands, selling products such as CDs and DVDs.

During a UK parliamentary debate in February last year it was stated that the UK Treasury was losing �80m a year from retailers operating "offshore" and that could soon reach �200m a year.

Jersey and the Bailiwick of Guernsey are direct dependencies of the British Crown.

They are not incorporated into the United Kingdom, but do owe their allegiance to the reigning Sovereign.

The islands have their own governments, their own tax-raising powers and are not members of the European Union.

Liberal Democrat MP Vince Cable, who is backing the parliamentary motion, said: "I would have thought that if companies are well established in the islands there could be a way of distinguishing them from the companies that are simply exploiting a loophole.

"But the chancellor of the exchequer has a duty to protect British taxpayers and action has to be taken."

Supermarket giant Tesco announced earlier this year that it was moving its mail order internet sales from Jersey to Switzerland so it could continue to sell cheap DVDs and CDs.

The company is one of those told to leave Jersey following pressure from UK shops and the Treasury.

Another is Amazon, but Play dot com, which was started in Jersey, is staying.