Online retailers selling CDs and DVDs using the Channel Islands' VAT loopholes to dodge millions of pounds of tax are facing a crackdown, a leaked Treasury letter has revealed. Ministers have until now insisted that online retailers' use of VAT relief on imported goods that are sold for less than £18 were not a 'loophole', but the practice is now 'under review', The Guardian reports. A leaked letter from Treasury minister Stephen Timms has revealed that the government privately believes that British companies marketing goods sourced in the UK to UK customers at VAT-free prices could be 'abusing' rules. HM Revenue & Customs is looking to set up a test case to support its belief that shipping arrangements in the loophole are tantamount to abuse of the tax structure. As a means of qualifying as VAT-free transactions, goods destined for UK customers are taken on a journey to the Channel Islands and back again. In a letter to the Treasury, Timms, said that HMRC regards certain arrangements 'for goods to be imported from a Channel Island to benefit from LVCR (low value consignment relief) to be "an abusive practice"'.