Tax free shopping for non-UK visitors is set to be reintroduced in a huge breakthrough for the industry after persistent and concerted lobbying efforts.

Chancellor Kwasi Kwarteng today (23 September) announced the move in his ‘mini budget’ statement to the House of Commons.

He said: “We have decided to introduce VAT-free shopping for overseas visitors. We will replace the old paper-based system with a modern, digital one and this will be in place as soon as possible. This is a priority for our great British retailers, so it is our priority too.

“Britain welcomes millions of tourists every year, and I want our high streets and airports, our ports and our shopping centres, to feel the economic benefit.”

While specific details on the nature of the scheme are to be confirmed, it is understood that the VAT refund for tourists to Great Britain is intended to cover goods purchased on the High Street, plus airside shopping post-security at airports and other departure points of sale in a scheme to be introduced by HM Treasury in partnership with HMRC.

UKTR Chair Nigel Keal said: “This is a fantastic announcement by a government that has been clear from the start of its intention to put aside Treasury orthodoxy and find new ways to generate growth for the UK economy and industries. The travel retail industry welcomes today’s news.

“When the previous government removed tax free shopping as a part of Brexit, the effects on a travel sector already struggling with the Covid pandemic were substantial. The restoration of tax free shopping will be a boost to the recovery of our industry, and will put UK travel retailers on a level footing with their competitors around the world.

“We look forward to working with HM Treasury and HM Revenue and Customs to provide input on the finer details of the scheme, and we absolutely look forward to providing a top-class tax free shopping service to our customers once again.”

As part of the ‘mini budget’, the Chancellor also revealed that duty rises in beer, cider and wine would be cancelled.

TRBusiness reliably understands that industry lobby voices are set to engage in a consultation and meetings to discuss the proposed new arrangements.

As reported, the UK government decided not to extend VAT RES to EU visitors and moved to withdraw the mechanism for non-EU visitors in Great Britain from 1 January 2021.

TRBusiness mounted a sustained campaign to reverse a move to axe VAT RES and the extra-statutory concession on airside tax free sales in the wake of Brexit.

A petition launched by this publication attracted more than 10,000 signatures and received a response from Parliament, joining a high-profile legal challenge brought by Dufry, Global Blue and Heathrow Airport.

UK airports: Welcome boost, now act on arrivals duty free

However, the High Court ruled against the Heathrow-led challenge in a ruling in May 2021.

Commenting on the fiscal statement, Karen Dee, Chief Executive of the Airport Operators Association said: “We are pleased that the Government has listened and reintroduced VAT-free shopping for international visitors.

“The imposition of VAT placed our airports at a significant competitive disadvantage compared to our European neighbours and its reintroduction will provide a real boost to our aviation, travel, and tourism industry as we continue to rebuild from the impacts of the pandemic.

“The government must now go further and act on arrivals duty free in the upcoming budget. The renewed focus is welcome on infrastructure projects, creation of investment zones and broader fiscal measures are welcome and must be used to support the recovery of UK airports and place our aviation industry back at the heart of the UK economy.”

In a statement obtained by TRBusiness, Heathrow Airport CEO John Holland-Kaye said: “The return of tax free shopping for international visitors is great news for British businesses.

“We want to hear the tills ringing on our shores as visitors make the most of the UK’s world-renowned retail, not lured away to Paris or Milan when we know how competitive our offer is. The boost this brings will spread far beyond our airport terminals, and reach high streets and ports up and down the country, without even mentioning the extra spend visitors make on hospitality and leisure. Thanks to this added incentive, the government is strengthening the offer of a truly global Britain.”

While the introduction of a digital, VAT-free shopping scheme has been acknowledged as a welcome boost for the High Street, particularly in view of the current weakness of the Pound sterling, some have pointed out complexities in its implementation.

Alison Horner, Indirect Tax Partner at accountancy firm MHA, said: “Until Brexit the UK, as part of the EU, did operate the Retail Export Scheme for non-EU visitors, so we’re not breaking new ground here. Delivering the scheme does entail a new digital scheme in Great Britain and modernising the existing scheme in Northern Ireland.

“Potentially the scheme could prove troublesome to implement. HMRC have been involved in many digital roll outs recently. We have to hope that delivery can be achieved in a relatively short time frame without some of the issues experienced in the bigger projects such as Making Tax Digital and the new Customs Declaration service.”

More to follow…