Think again if you are an international traveler expecting to get a sales tax rebate on your shopping the next time you are in Britain. Tough new rules from the U.K. treasury mean that from next year you won’t be able to get a VAT refund as you leave the country—unless what you buy is shipped direct to your home address.
Go-to luxury department stores like Harrods and Selfridges that, before Covid-19, were frequented by international tourists—particularly Chinese, Middle Eastern and Russian shoppers—may never recover these high-spending travelers without the existing VAT Retail Export Scheme in place.
As part of treasury plans to reintroduce duty-free shopping from January 2021 for British passengers travelling to the European Union post-transition, the government has also decided to end VAT refunds for overseas visitors in British shops. It is also ending airport tax-free sales of goods such as electronics and clothing for passengers travelling to non-EU countries.
The retail double whammy has been heavily attacked by retail associations. The New West End Company, which represents 600 businesses across the most prestigious shopping areas in the U.K.—Oxford Street, Bond Street, Regent Street and Mayfair—described the move as “a massive blow to the U.K. economy.”
Responding to questions from Forbes.com, the group, said: “We cannot express strongly enough the devastating impact this decision will have on Britain’s international tourism and retail industries.
“The U.K. will now be the only country in Europe not to offer tax-free shopping to international visitors. The government is effectively telling international tourists, particularly those from the Middle East and Far East, for whom shopping is a major draw, to go everywhere else but the U.K. to spend their money.”
‘A complete lack of awareness’
The UKTRF, which represents British travel retailers, said “jobs and livelihoods will almost certainly be put at risk.” Chair François Bourienne added: “This announcement deals a hammer blow to an industry already struggling with the devastating impact of the Covid-19 outbreak. Retailer and airport revenue will suffer.”
From the aviation side, Karen Dee, CEO of U.K. airports group, AOA said: “The government has once again shown a complete lack of awareness for the jobs and businesses on the line in the aviation sector. It is needlessly harming retailers and airports. Many foreign visitors will go elsewhere.”
New West End Company research indicates that since non-essential retail was reopened in Britain in June, visitors to London’s West End are still down by more than 60% year-on-year. The new treasury rules mean that a return to pre-pandemic levels could now be in doubt.
The group says the decision changes a potential £2.1 billion tax-free shopping bonus from the U.K.’s departure from the EU into a £3.5 billion* loss of tax-free sales. This is a net £5.6 billion ($7.2 billion) hit on the UK economy, before accounting for the negative knock-on effect on wider international tourism spending, at a time when retail and tourism in Britain are reeling from pandemic.
A VAT own goal?
In its latest August forecast, Visit Britain expects inbound tourism to the U.K. in 2020 to be down 73% in visits but 79% down in spending to £6 billion. This represents a loss versus its pre-Covid forecast of £24 billion.
If high-spending tourists choose to go to Paris, Rome or Milan instead of London to shop tax-free, the ripples will be felt by hotels, restaurants and cultural attractions. “The decision will clearly damage the government’s ambitions for ‘Global Britain’,” says New West End Company. “The inevitable fall in international tourist numbers and spending in the U.K. will reduce all other VAT income (total annual spending by international visitors is over £22 billion).”
Defending the changes—which have come after a consultation with industry—the government said that it was removing tax-free sales at airports “following concerns that the tax concession is not always passed on to consumers in the airport.” It claims that in some instances tax-free goods are brought back into the country by U.K. residents, putting domestic retailers at a disadvantage.
On the removal of VAT refunds for international travelers, the treasury said: “Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses.”
New West End Company told Forbes.com that “it does not seem right that such a momentous decision should be made on the basis of a one-sentence question in a 22-page consultation, which focussed mainly on duty free issues.” “We are therefore taking legal advice on how best to examine the process and briefings that led to this decision,” the organization said.