Ending VAT-Free Shopping | Decision Can Hit UK Tourism & Retail

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LONDON: A government plan to end VAT-free shopping for international visitors at the end of the year could cost the UK billions of pounds in lost income, travel and retail bosses have warned.

In a letter to the chancellor, the heads of firms such as Marks & Spencer, Heathrow and Selfridges said the move also put 70,000 jobs at risk.

About £3.5bn in tax-free sales are made to non-EU tourists each year. The Treasury says the tax relief is costly and vulnerable to fraud.

Under the VAT Retail Export Scheme (VAT RES), international visitors to the UK can reclaim the VAT they pay on goods purchased but not consumed in the UK.

It benefits tourist hotspots like London and Edinburgh, as well as the famous Bicester shopping village in Oxfordshire, which attracts visitors seeking bargains.

But earlier this month the government said it would abolish VAT RES on 31 December, when the Brexit transition period ends, arguing it offered little benefit to many parts of the UK and was inconsistent with international norms.

Critics say the Treasury fears that, under World Trade Organisation rules, the UK would also have had to extend the scheme to EU visitors after the transition period, creating an overwhelming administrative burden on the tax authorities.

The Association of International Retail (AIR), which co-wrote the letter, urged the chancellor to “look again at this devastating decision”.

It warned the UK will become the only European country not to offer VAT-free shopping for international visitors.

According to Visit Britain, international tourists spent £6bn on shopping in the UK in 2018. Of those transactions, £3.5bn were registered as tax free sales, although VAT was only reclaimed on £2.5bn.

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