HMRC Withdraw the VAT Retail Export Scheme

Author

Keith Miller

Keith is an experienced VAT adviser who has been advising businesses for almost 30 years.

HMRC quietly removes valuable tourism VAT relief whilst heralding the return of the beloved duty-free

This week HMRC have announced the withdrawal of the VAT retail export scheme…

The announcement was made in an HMRC report that primarily heralded the return of duty-free shopping for visits to EU countries from 1 January 2021. Of course, the re-introduction of duty-free shopping between the UK and the EU is only necessary because free movement is being withdrawn from 1 January 2021.

Currently non-EU visitors to the UK can obtain VAT refunds on gifts and others goods they purchase in the UK and take home with them. A similar scheme is available across the EU for non-EU visitors. The scheme in the UK is known as the ‘retail export scheme’.

Although all visitors initially pay VAT on their purchase, non-EU visitors can obtain a refund once the goods have left the EU.

Visitors to the UK from other EU countries are not eligible for a VAT refund, nor are UK visitors who pay VAT on goods purchased in other EU countries.

HMRC Amend VAT Policy – January 2021

It was widely expected that HMRC would amend the retail export scheme to include visitors from EU countries from 1 January 2021, when UK visitors to other EU countries are expected to become eligible for the VAT retail export scheme across the EU (because they will become non-EU visitors from that date).

However, in a surprise move, HMRC have announced that the entire retail export scheme is to be scrapped from 1 January 2021. HMRC have stated, however, that VAT relief can still be applied if the goods are shipped by the retailer direct to the customer’s non-EU address, rather than being taken away by the customer, although this will not be a very popular alternative, one imagines, and also one that would give rise to further costs for the customer/retailer.

We wait to see whether the EU will play tit-for-tat and limit the rights of UK visitors to a VAT refund from EU countries, but it is unlikely that they will want to be so petty as to discriminate against UK visitors in this way.

HMRC on the other hand (influenced by the current government, no doubt) are quite happy to withdraw the wider benefits the scheme offers the UK travel and tourism sectors simply to preserve the VAT take from EU visitors after 31 December 2020.

Although the scheme had been the subject of some abuse (for example, three sisters from Salford were jailed for falsely claiming over £300k under the scheme) there had been a consultation on modernising the scheme as recently as last year, which focused on making the claim process more efficient and introducing anti-fraud measures, so the withdrawal has come as a surprise.

Although HMRC have suggested that regions outside London (and Bicester Retail Park apparently) will not be significantly affected by the withdrawal of the scheme, business leaders in Manchester strongly disagree.

Sheona Southern, Marketing Manchester’s MD, has been reported as saying that the decision will “hit the economy hard” and Jane Sharrocks, chair of Manchester Business Improvement District, said the decision will have “untold impact” on both the local economy and the UK economy, pointing to the fact that “international visitors and their tax-free spending are supported by a wider tourism ecosystem beyond just retail, including leisure, hospitality and travel.”

Although at the time of going to press we don’t have an accurate figure for the value of gifts and other goods purchased in the UK by EU/non-EU visitors, we do know the total amount spent in total by visitors to the UK.

We know that in 2018, there were 37.9 million overseas visitors to the UK, over 70% of those from European countries.   In total, these visitors spent £23 billion, that’s £600 per visitor on average.

Are HMRC Reducing VAT Rates?

Of course, much of this will be spent on accommodation, leisure and hospitality, but this then brings me to another connected issue. Earlier in the year I wrote about the government reducing the VAT rate to 5% on a range of hospitality services (hotels, restaurants, etc).

I also wrote that this brought the UK closer to the rest of the EU, who broadly speaking already apply much lower VAT rates to such services, and that the measure was only temporary, ending on 31 December 2020.

So, come 1 January 2021, the UK will remove the existing VAT reliefs available to non-UK visitors, put EU citizens visiting the UK at a disadvantage compared to UK visitors to EU countries, and once again impose a much higher than average VAT burden on the UK’s travel, tourism and hospitality sectors.

At a time when these sectors are desperate for support, HMRC/the government once again fail to deliver a medium/long term solution.

HMRC should reconsider the scrapping of the retail export scheme and also consider making the change to the VAT rate applied to hospitality services a permanent one.

This would provide a simple, effective boost to the affected sectors at a time when such a boost is much in need.

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