UK retail in shock as government to end tax-free shopping for non-EU tourists

By

Sandra Halliday

Published
Sep 21, 2020

The UK government is being urged to reconsider its decision to almost completely opt out of tax-free shopping at the end of the year with retailers and the bodies that represent them saying it would be a catastrophe.

They said ending the VAT Retail Export Scheme, under which shoppers can claim back the 20% of the purchase price they paid in VAT, could cost 70,000 jobs and dent the economy by £5.6 billion.

At present, shoppers in the UK from outside of the EU are able to claim back the sales tax that they paid on goods bought in Britain.

Yet the Treasury quietly announced this month that the scheme would finish at the end of December. It said that this would bring the UK in line with international norms, although given that very many countries globally offer tax-free shopping, it’s unclear what kind of international norm the Treasury is referring to. The UK would actually become the only country in Europe not offering tax-free shopping.

This could potentially dent the appeal of the UK as a shopping destination for the many visitors it sees each year from countries such as China, the US, Russia and from the Middle East, among others. 

Britain’s exit from the EU and its single market had meant there was hope that tax-free shopping for EU visitors would become available. Not only will that not happen, but the government will go further and widen the number of people who can't claim back their VAT.

Tax-free status is a key attraction for shoppers and an end of the system could mean they take their money to other European countries instead at a time when the UK will be reeling from its EU exit and from the effects of the pandemic.

The UK is already at something of a disadvantage regarding tax-free shopping as the system under which international shoppers claim their money back is slow and paper-based, rather than being fast and digital as in many other countries.

M&S, Harrods, Selfridges and Bicester Village’s owners, along with major airports for whom tax-free hoping is a profits-saving revenue stream in normal times, have all signed a letter to the Chancellor urging him to rethink the decision.

Anne Pitcher, the Selfridges MD, said it’s another nail in the coffin for city centre retail.

The Mail quoted her saying that any additional tax revenue raised by scrapping the VAT refund system would be counteracted by falling vision numbers. 

“This should have been a golden opportunity to make Britain one of the most desirable countries to visit. Instead, with a single swipe, the government has taken more than £20 billion of opportunity from the economy,” she said.

Paul Barnes, chief executive of the Association of International Retail, said the decision would cost thousands of jobs in the UK and that key cities in Europe "are rubbing their hands with glee at this self-inflicted wound. If we charge a fifth more for the same goods, international visitors will not hesitate to switch their city breaks to other countries and the stores and jobs will follow within months.” Meanwhile Mulberry also criticised the decision and said it would cost jobs.

In the most recent year, international tourist reclaimed the VAT on £2.5 billion of purchases but paid VAT on the rest of the £22 billion they spent in Britain.

But the Treasury said retailers will still be able to offer tax-free shopping to overseas visitors who buy items in-store if they have them sent to their home addresses.