[UPDATED] Travel retail associations have urged the industry to back urgent lobbying efforts led by the UK Travel Retail Forum (UKTRF) to reverse a decision to axe airside tax free sales (aside alcohol and tobacco).

UK travel retail was left reeling on Friday 11 September after responses that emerged from a government consultation revealed an end to the concession for UK airport travellers to non-EU destinations, effective January 2021.

The decision simultaneously shelved the possibility of extending the relief to EU-bound passengers.

However, the government did confirm the restoration of duty free liquor and tobacco sales to EU-bound passengers at British ports, airports, international train stations, aboard ships and airlines. The decision applies to England, Scotland and Wales.

UK FACING ‘ISOLATION’

A statement issued directly to TRBusiness from the Duty Free World Council (DFWC) read: “We don’t fully understand why the UK government have taken this step, it is very much out of kilter with international taxation best practice as recommended by various international treaties. If they do implement this policy then the UK will be largely isolated among developed countries.

“Without a doubt it will have an impact upon our retail members and our airport partners. To do this at a time when the industry is on its knees is particularly short-sighted. We would urge all the industry to get behind the UKTRF who are leading the fight against this measure in London.”

During a webinar hosted by the DFWC yesterday (17 September), the European Travel Retail Confederation (ETRC) reiterated its support in helping the industry convince the government to shift its approach on tax free sales.

Julie Lassaigne, Secretary General, European Travel Retail Confederation (ETRC) said: “Last week was the announcement. The legislation is not passed yet. We are hopeful if the UK government understands the damage that policy could have they will overturn this decision.

“In particular for us as ETRC we think that will be a very welcome precedent should the UK government do this. It is something we don’t want to see replicated in other countries.

“We are fully behind the UKTRF in engaging with the government on the point relating to the VAT free sales as it is essential for the survival of our industry.

“For brands who want to help, reach out to UKTRF. What is important is to be fully behind the airports, retailers and associations and also talk to their local MPs, particularly if they have warehouses or any business in the UK.

“This will make the government understand that by losing the ability to sell to international travellers, they will be losing jobs in their own constituencies because this is what will eventually happen.”

As reported earlier this week, the UKTRF is seeking urgent, constructive talks with the government at all levels to reverse what would be significant damage to travel retail and aviation.

“There is a really good amount of cohesion and cooperation with the wider industry and actions are being taken to oppose this decision,” Cameron Gray, Secretary General UKTRF told TRBusiness.

“Every regional airport, duty free retailer with a [bonded] warehouse in a constituency needs to be contacting their local Member of Parliament, explaining to them the massive impact this decision is going to have making clear it will not just hit revenues but jobs, livelihoods and local communities.”

The association had hit out in the wake of the UK government’s announcement to axe tax free sales in airports at the end of the Brexit transition period (31 December), stating the decision emerged without warning.

Gray said: “Our understanding from the consultation that government issued earlier this year was that they wished to understand the potential benefits of the extension of the VAT-free system for passengers travelling from the UK to the EU, the implication of course being to look at the possibility of standardising a VAT-free system for all destinations.

“What wasn’t raised at any stage in the written consultation or our numerous points of engagement with officials or ministers was the possibility that the VAT exemption would be withdrawn in its entirety.”

In the same breath, the association expressed concerns over the sufficiency of information provided to ministers, including UK Exchequer Secretary to the Treasury Kemi Badenoch MP, on policy options that exhibit a ‘clear rationale or robust cost benefit analysis’ regarding the tax free concession prior to the decision to remove it being taken.

ESC INFLECTION POINT

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

The ‘very limited’ legal scope of the ESC and in turn the inability to amend or continue it after Brexit was among several reasons given by government for the cessation of the system.

The UKTRF rejects the point when flagged by TRBusiness, pointing out that Whitehall possesses the constitutional authority to make such an amendment.

Another response focuses on the ESC being applied ‘inconsistently’ with regards to international tax rules, namely that VAT and excise goods should be paid in the country of consumption rather than applied to goods for immediate consumption that are not exported, together with questions over how it would apply if legislation was implemented.

The government also cites issues with rules allowing relief on goods carried back to the UK, for example a UK resident who purchases a camera VAT-free on departure, before returning to the country without paying the tax.

Gray said: “I struggled with the assessment that everyone is purchasing digital cameras and re-entering immediately. The comment fails to take into account the vast bulk of product categories that are traditionally and typically for sale in the airside environment – cosmetics, perfumes, confectionery and other foodstuffs frequently bought on the way out of the UK as gifts or intended for other uses at the destination.”

The government has made more explicit worries that the tax free concession is not ‘consistently’ passed directly to consumers at the airport, a response that evoked surprise and disappointment in equal measure from the UKTRF.

“We acknowledge there was an issue several years ago with the value of VAT being passed onto consumers, but the industry agreed a voluntary code of conduct to ensure the value of VAT-free sales was being passed onto consumers,” stated Gray.

“At the time, the Treasury and HMRC conveyed to the sector they were happy with the approach and no further action was needed. If, in that intervening period, government had become unhappy again we would have been very happy to have heard their concerns and be given the opportunity to address or resolve these before the exemption was removed wholesale.”

As reported, the government also announced the end of the VAT Retail Export Scheme (VAT RES) for overseas visitors in British shops, although they will still be able to purchase VAT-free items for shipment to overseas addresses.

The consultation responses refer to it as a ‘costly system to maintain’ with ‘unclear economic benefits’ and one that is ‘burdensome for exit points’.

“We noted the claim made in the consultation response, but it is not something we have been presented with evidence of or feel we were given the opportunity to respond to before the decision was made,” replied Gray.

“Obviously we agree and accept the VAT RES system is worthy of modernisation and has inefficiencies. But we would be strongly of the view that the correct and proportional response in this instance is to work with the industry to modernise the system and make it fit for purpose in a post-Brexit environment.”

As mentioned above, the decisions on tax free and duty free concern England and the devolved administrations of Scotland and Wales.

Quite whether the decisions will impact Northern Ireland remains unclear, although when the consultation was issued earlier this year it stated that the government is working with the Joint Committee on the implementation of the Northern Ireland Protocol and is committed to offering guidance on how this would work with regards to tax and duty free goods before the end of the transition period.

Likewise, it is not yet apparent whether the tax free decision affects cruises and ferry operators and the picture is muddied as territorial law becomes difficult to apply in international waters. As such, the UKTRF is seeking clarity on this point.

FORMAL LEGISLATION REQUIRED

TRBusiness took the opportunity to pose several points raised by government in its consultation responses that informed its thinking to end tax free sales.

That the ESC operates under a ‘very limited’ legal scope and therefore could not be amended, nor could it apply after the end of the Brexit transition period, a UK Treasury spokesperson told TRBusiness: “The current rules that allow tax free airside shopping for non-excise goods are not set out formally in legislation, and instead are applied as part of an HMRC extra statutory concession which cannot be changed.

“WTO rules state that non-EU and EU passengers will need to be treated equally after the end of the transition period. Therefore, the current rules cannot continue at the end of the transition period as it would result in EU and non-EU bound passengers being treated differently.

“If the final decision were have been to continue tax free airside sales, then formal legislation would have been required.”

TRBusiness also asked why concerns regarding the current ESC rules, which the government says are being applied ‘inconsistently’ within the realm of international tax rules (namely relief applied on goods for ‘immediate consumption’ that are not exported, together with tax free purchase made by UK residents on departure on goods likely to be brought back into the UK without tax being taxed), weren’t raised by government earlier as the industry has pointed out.

The spokesperson responded: “This issue has been raised with industry since 2015/16, and was raised and referenced as part of the consultation. Paragraph 4.26 asks an open question about whether we should extend airside tax-free sales. 4.27 question asks specifically about views and impacts of abolishing the airside tax-free sales. It’s also referenced in 5.13 in the summary.”

“The government published a consultation which ran from 11 March to 20 May and had a number of virtual meetings with stakeholders to hear their views. The consultation contained a number of options on the VAT Retail Export Scheme, including the potential abolition. Paragraph 4.21 of the consultation references the possibility of abolition of VAT RES. 4.23 then contains an open question on the impacts of abolition. Also referenced in 5.11 in the summary.

“The consultation document also asked about the impacts of abolishing airside tax-free sales – in particular: 4.26 asks an open question about whether we should extend airside tax-free sales. 4.27 question asks specifically about views and impacts of abolishing the airside tax-free sales.Also in 5.13 in the summary.”