Vat changes following brexit – tax-free shopping scrapped

It has been over 4 years since the UK voted in a referendum to leave the European Union (“EU”).  Although the UK (finally!) left the EU on 31 January 2020, the UK is still subject to EU rules during a transition period which is set to end on 31 December 2020.  As a result of these seemingly endless negotiations many of the proposed VAT changes have not been finalized.

There are however a few changes which will impact anyone travelling to the UK from the start of 2021.

 

Abolition of Tax-Free Shopping

In common with many countries, the UK currently allows tax-free shopping relief.  This allows visitors from outside the EU who come to the UK for less than 3 months and purchase goods from participating retail stores to claim the VAT back.

From the start of 2021 this relief more correctly known as the VAT Retail Export Scheme has been abolished.   While this is not directly connected with the EU and Brexit negotiations, it seems that the UK has used Brexit as a very convenient date in order to scrap tax-free shopping.

While UK retailers have been outraged at the withdrawal of the relief, the truth is that it was a very clunky and inefficient relief to take advantage of.  Firstly, it only applied to participating retailers and it was necessary to have a minimum purchase spend (often around GBP 75).  The retailer was required to complete and stamp a form and visitor also needed to complete part of the form.  In most cases the retailer insisted of proof of overseas residency so if you didn’t have your passport it was not possible to proceed.

To get your money back, you had to take the stamped VAT form with the goods and receipts to Customs authority at the airport of departure.  The Customs authority approved the form only if everything was in order. It was not uncommon for there to be lengthy queues at the Customs desk at airports waiting for your form to be approved and in many cases the forms were not approved if for example, the goods had been placed in hold luggage so could not be shown to the Customs officer.

Once the form was approved, the repayment was dealt with by one of the approved “partner” businesses.   These partner businesses charged a hefty administration fee, so the amount of the refund was quite meagre and could often be as much as 50% of the VAT.

Overseas visitors will still be able to buy items VAT-free in UK stores and have them shipped direct to their overseas address.  This involves more work on the part of retailers, and for many items the shipping costs could well be lower than the costly administration fees charged on the VAT refund scheme. We would hope that retailers don’t artificially hike up the shipping costs.

Quite why UK retailers are so outraged at the withdrawal of the scheme is not clear, but could it be that they were being paid commissions from the tax-free shopping administration partners and this rather lucrative income stream appears to be coming to an end. We will leave it to you to decide!