Additional reporting by Andrew Pentol.

[UPDATED] The UK government has confirmed the restoration of duty free sales between Britain and the EU at the conclusion of the Brexit transition period, but tax free sales on airside products (aside alcohol and tobacco) will end for all travellers.

The UK Travel Retail Forum (UKTRF), which represents the interests of companies trading in travel retail, has expressed its ‘grave disappointment’ following the decision on tax free sales.

As anticipated, effective 1 January 2021 EU-bound passengers won’t pay UK excise tax or duties on alcohol and tobacco products at British ports, airports, international train stations, aboard ships and airlines.

‘CONCERNS’ OVER TAX CONCESSION

The changes apply to England, Wales and Scotland. It is unclear at this stage if the new rules would apply to Northern Ireland.

The amount of excise-free goods travellers can bring back from EU and non-EU countries alike will increase (see below table).

However, in a significant development confirmed via responses in a consultation published today – and pre-empted by TRBusiness – ministers will not extend tax free sales to airport passengers travelling to the EU and will simultaneously end the tax free sales concession for those visiting non-EU destinations.

In a HM Treasury statement, the government said: “We are ending tax free sales in airports of goods such as electronics and clothing for passengers travelling to non-EU countries, following concerns that the tax concession is not always passed on to consumers in the airport.”

According to extracts from the consultation responses seen by TRBusiness, concerns had also been raised ‘over the operation of the current scheme and that the government could remove airside tax free shopping’.

These appear to centre around claims that the relief, in some instances, is not ‘consistent with international tax principles’ where VAT and excise goods should be paid in the country of consumption.

An example cited is when tax free goods are brought back into the country by UK residents or consumed in the airport.

Under current law, tax free sales to passengers travelling to non-EU countries are permitted under an HMRC extra statutory concession (ESC).

However, the government states the legal scope for such an ESC ‘is very limited’ and questions were raised as to how it could be legislated, as the law would need to be amended to permanently allow the tax relief.

‘HAMMER BLOW’ TO INDUSTRY

The UKTRF had previously called on the UK government to ‘level the playing field’ for non-excise duty airside products by axing proposed plans to retain VAT on sales to EU-bound passengers.

A strongly worded response from the UKTRF lamented a decision that it says will cut billions of pounds from the UK aviation sector and put thousands of jobs at risk at a time when the industry is struggling to recover from the decimation to sales caused by the coronavirus (Covid-19).

Speaking on behalf of UKTRF members, François Bourienne, Chair, UK Travel Retail Forum said: “This decision puts the UK out of step with travel retail systems around the world, completely disincentivises tourists to visit the UK and British passengers making purchases as they go on vacation abroad, and puts UK airports and travel retail at a substantial disadvantage against their European counterparts after Brexit.

“This will lead to significant additional job losses in the travel industry.

“It may well be the best gift the UK could have given the EU as well as a massive blow for UK plc. In the more immediate term, this announcement deals a hammer blow to an industry already struggling with the devastating impact of the Covid outbreak. Retailer and airport revenue will suffer, but jobs and livelihoods will almost certainly be put at risk.

“While we are grateful for the government’s move to extend duty free sales to passengers travelling from the UK to the EU, we are extremely concerned that ministers have not fully appreciated the impact this decision will have on the wider travel retail and aviation sectors.”

“We urge the government to immediately review its decision and act swiftly to ensure jobs, businesses and Britain’s place as a premier travel hub are not lost.”

VAT refunds for overseas visitors in British shops will also be removed. However, overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses.

The government adds that the ‘costly system’ of claiming VAT refunds on items they take home in their luggage will be ended.

“In some instances these tax free goods are brought back into the country by UK residents, putting high street retailers at a disadvantage.”

The Airport Operators Association (AOA), the voice of UK airports, echoed the UKTRF’s dismay at the ‘hammer blow’ decision.

In a statement, AOA Chief Executive Karen Dee says the government is ‘needlessly harming’ the revenue of retailers and airports.

She said: “Passengers will be disincentivised from making purchases as they travel through the UK. Many foreign visitors will now choose to go elsewhere, attracted by the beneficial tax and excise regimes of our European competitors.

“I strongly urge the government to reconsider, review its proposal and act in partnership with its once world-beating aviation industry to secure jobs, businesses and livelihoods across the country.”

Dufry declined to comment when approached by TRBusiness.

The UK is currently in a transition period having exited the European Union in January.

For the duration of the period in which Britain remains in the Single Market and Customs Union, the same rules apply – no return of duty and tax free sales between the UK and EU.

Relations between both have been strained in recent weeks with the UK’s Internal Market bill seeking to reconfigure sections of the withdrawal agreement, once again raising the possibility of a no-deal Brexit.