Additional reporting by Charlotte Turner and Luke Barras-Hill

The travel retail industry lobby says the UK Government should axe plans to retain VAT on certain sales in the event of a hard Brexit.

While the UK Travel Retail Forum (UKTRF) welcomed an announcement made by the UK Treasury yesterday on the return of duty free tobacco and alcohol sales to EU-bound travellers, it is concerned that the government has declined to remove VAT applied to other product categories available airside.

This would put UK airports and retailers at a considerable disadvantage compared to their EU counterparts post-Brexit.

From the EU side, the rules are clear on the return of duty and tax free as previously reported.

However, the UK as a third country is free to set its own rules. The UK government’s announcement means travellers to the EU can buy alcohol and tobacco exempt of excise duty and taxes (as a potential non-EU country), but they must pay VAT on all other airside products.

With effect, the current UK legislation will need to be amended as other categories and goods will be classed as tax paid.

“We don’t understand it, we’re not happy with it and want some answers as to why this has to happen,” says a source close to the matter.

“This puts UK airports and travel retailers at a huge competitive disadvantage to the EU, where things will be simple and we don’t see any practical reason why HMRC are doing this. We haven’t been given any answers to that yet.

“Rules and regulations need to be in place, should a hard Brexit happen, that create fair and equitable conditions.

QUESTIONS OVER CRUISE AND FERRY IMPACT

“We don’t think this is the right policy and will be hugely confusing for the passenger, who will get one price into the UK and one price out.

“We don’t know how this will work on cruise ships or ferries. We will keep going trying to convince the Treasury that this is a retrograde step and not good for Britain. From day one, UK airports will be competing with their European counterparts with one hand tied behind their back.”

It is however understood that the decision on VAT wasn’t a huge surprise to the lobby, who have been working hard to secure concessions from the government on the duty free issue for months.

With the UK Parliament shutting down its business for five weeks, a decision taken by Prime Minister Boris Johnson, Ministers will have very limited time to thrash out a potential withdrawal deal.

Parliament will begin business on 14 October, three days before a critical Brexit summit with the EU.

Having said all of this, the threat of a no-deal scenario has died down significantly in the past week after a bill to stop it received Royal Assent. The Prime Minister has since failed twice in attempts to call a General Election.

TRANSITION PERIOD?

“If a hard Brexit happens – that is a moveable feast. We will be seeking meetings with the HMRC and Treasury in the next week,” adds the source. “Our goal is to have the VAT decision reversed as soon as possible.”

Should a withdrawal deal be struck before the 31 October, it is understood similar rules with regards to a transition period of 20 months will apply before a return to duty free sales between the UK and EU would occur.

In the eventuality of a transition period, the UK would remain tied to the Single Market and Customs Union as an EU member state.

The previous transition period was due to run from 31 March to the end of December 2020.

As previously reported, following meetings in Brussels on 4 September with the European Commission to discuss the implications of a hard Brexit, the European Travel Retail Confederation (ETRC) confirmed Europe’s current position regarding a restoration of sales and urged its members to plan accordingly.

UNCERTAINTY REIGNS…

As things stand, the UK will leave the EU with or without a deal by 31 October 2019, but cross-party opposition to Prime Minister Boris Jonhson’s exit plan has intensified in recent weeks. If a deal ends up being struck, a transition period as mentioned looks set to apply under the current arrangement before duty free sales are reinstated.

According to a UK Treasury statement seen by TRBusiness, the return of duty free in UK ports, airports and international train stations for travellers heading to EU countries will mean UK excise duty is no longer due on alcohol and cigarette purchases. A bottle of wine purchased in a World Duty Free store at Heathrow Airport, for example, could be up to £2.23 ($2.75) cheaper, the statement said.

As is currently the case, travellers leaving the EU would be able to continue purchasing and bring home unlimited alcohol and cigarettes to European locations providing they pay duty on it there.

Passengers would also have the alternative of buying limited amounts of duty free alcohol and cigarettes at European duty free shops instead. The statement indicates that holidaymaker, for example, would save more than £12 on two crates of beer.

‘BACKING BRITISH TRAVELLERS’

Chancellor of the Exchequer Sajid Javid, who said a consultation would also be launched on the Treasury’s long-term duty free policy said: “As we prepare to leave the EU, I’m pleased to be able to back British travellers. We want people to enjoy their hard-earned holidays and this decision will help holidaymakers’ cash go that little bit further.”

UK Travel Retail Forum Chair Francois Bourienne commented yesterday: “We welcome the announcement by the government confirming the removal of duty and tax from alcohol and tobacco products for passengers travelling from the UK to the EU in the event of a no-deal Brexit.

“The industry has been campaigning for fair and sensible changes to the UK’s duty free structure for an extended period and it is pleasing to see the government provide the certainty our industry needs to prepare for a no-deal Brexit.”

He added: “While these changes are a positive first step, we remain very concerned that the government has declined to remove VAT from other product categories available airside.

UKTRF CALLS FOR URGENT REVIEW

“With the EU already clearly signalling its intention to remove duty and tax from all airside products in the event of a no-deal Brexit, UK airports and retailers will be put at an immediate and significant competitive disadvantage against European competitors.”

The UKTRF is urging the government to ‘urgently review’ its decision not to remove VAT from other product categories.

In the meantime, Bourienne is looking forward to working constructively with the government to ensure UK travel retail can compete, succeed and continue to make a significant economic contribution across the country.

He concluded: “Independent economic analysis has shown the duty free sector could contribute up to £900m to the UK economy after Brexit and generate approximately 9,300 new jobs.”