Retail Trade: VAT

Treasury written question – answered on 13th April 2021.

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Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton

To ask the Chancellor of the Exchequer, what plans he has to review the effect of changes to VAT-free shopping on jobs across different sectors and parts of the country.

Photo of Kemi Badenoch Kemi Badenoch The Exchequer Secretary, Minister for Equalities

On 11 September 2020, the Government announced the VAT and excise duty treatment of goods purchased by individuals for personal use and carried in their luggage arriving from or going overseas (passengers) following the transition period. The following rules were implemented on 1 January 2021:

- Passengers travelling from Great Britain to any destination outside the United Kingdom (UK) can purchase duty-free excise goods once they have passed security controls at ports, airports, and international rail stations.

- Personal allowances apply to passengers entering Great Britain from any destination outside of the UK, with alcohol allowances significantly increased.

- The VAT Retail Export Scheme (RES) in Great Britain has not been extended to EU residents and has been withdrawn for all passengers.

- The concessionary treatment on tax-free sales for non-excise goods has been removed across the UK.

The Government published a consultation which ran from 11 March to 20 May 2020. During this time the Government held a number of virtual meetings with industry stakeholders to hear their views and received 73 responses to the consultation. The Government has also met and discussed these changes with many stakeholders following the announcement of these policies.

The detailed rationale for these changes are included in the written ministerial statement and summary of responses to the recent consultation: https://questions-statements.parliament.uk/written-statements/detail/2020-09-11/hcws448 and https://www.gov.uk/government/consultations/a-consultation-on-duty-free-and-tax-free-goods-carried-by-passengers. A technical note has also been issued to stakeholders to expand on this document and to respond to issues raised by stakeholders.

On 25 November 2020 the independent Office for Budget Responsibility (OBR) set out their assessment of the fiscal impact of the withdrawal of the VAT RES.

Factoring in a higher-than-usual elasticity of 1.9 to account for spending on luxury goods, the OBR estimate that the withdrawal of the VAT RES will result in a significant direct Exchequer saving of around £400 million per year, once passenger numbers recover from the impacts of Covid-19. Based on the 1.2 million users of the scheme who received a refund in 2019, this includes an assumption that approximately 20,000 – 30,000 fewer tourists visit Great Britain a year. That is 0.07% of the 40 million visitors to the UK in 2019.

The OBR also looked at this package in the round when assessing the indirect impact on the economy – including the effects of extending duty-free sales – alongside the substantial support provided to the economy and retail industry.

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