Dragon says loophole killing UK retail

By the Editorial Team · Tuesday, June 30, 2026

Theo Paphitis has condemned the UK government for delaying the closure of a tax loophole that allows overseas retailers like Shein and Temu to avoid paying VAT, disadvantaging domestic retailers. The government has moved to accelerate phasing out the de minimis threshold by 2028, but industry leaders argue faster action or interim charges on imports are needed to protect UK businesses and level the playing field.

Former Dragons’ Den investor Theo Paphitis has criticized the UK government’s slow response to closing a tax loophole that benefits overseas retailers, warning that it is damaging domestic retail businesses. Paphitis, who owns the Ryman, Robert Dyas, and Boux Avenue chains, accused international platforms such as Shein and Temu of exploiting the current rules by not paying value-added tax (VAT) or their fair share of taxes, while UK retailers bear the cost.

Central to the dispute is the UK’s “de minimis” tax threshold, which allows parcels valued under £135 to enter the country with reduced customs checks and limited VAT collection. Retailers contend this system distorts competition, giving an advantage to foreign e-commerce businesses and undermining traditional high street shops. Last year, British consumers spent approximately £4.7 billion on discounted goods from overseas platforms including Shein and Temu.

The UK Treasury recently moved to accelerate plans to phase out the de minimis regime, bringing the deadline forward by six months to October 2028, after leading retailers including Sainsbury’s, Currys, and AO World urged for a faster transition. However, industry voices said this adjustment was insufficiently swift to address the competitive imbalance. Paphitis described the government’s approach as “lethargic” and said the issue was actively harming UK retail.

In comparison, other countries have taken more decisive action. The United States eliminated its low-value import exemption last year, while the European Commission will introduce a €3 charge on imports valued below €150 starting this month. Paphitis suggested a practical interim solution for the UK would be to impose a small fixed charge on all incoming parcels until broader reforms are finalized, noting that Europe had implemented a similar measure.

The UK government is currently reviewing responses to a consultation on a replacement system, which closed in early March. Officials are reportedly considering whether parts of the reform can be introduced sooner without disrupting supply chains at the border.

Shein refuted claims that it avoids paying VAT or other tax obligations, stating it has contributed hundreds of millions of pounds in UK taxes over the past three years. A company spokesperson emphasized Shein’s support for “fair, clear and consistently enforced customs rules” and confirmed ongoing engagement with HM Revenue & Customs regarding proposed reforms.

Requests for comment from the Treasury and Temu were not immediately returned.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.