In a much-needed intervention for struggling retailers, the Office of Budget Responsibility recently announced that it will undertake a cost versus benefit review of tax-free shopping and publish a report before the March budget. This would appear to be based on a combination of falling overseas visitors and the UK’s struggling retail sector.
Tax free shopping allowed visitors until January 2021 to present a VAT receipt at their airport of departure and recover the 20% VAT charged. This ceased with the UK’s departure from the EU and more to do with the estimated annual cost of £2bn rather than political events.
We caught up with two experts at HW Fisher for their take:
Gerry Myton, Head of Indirect Tax, says:
Given the difficulties faced by the high streets up and down the UK, this review is long overdue. The re-introduction of tax-free shopping was called for by HW Fisher prior to the last budget.
Tourists coming into the UK generate a wide range of new revenue streams, including increased hotel occupancy rates, covers in restaurants, and theatre ticket sales. The restoration of tax-free shopping would provide a well needed boost to a hard-pressed sector.
Would the government lose that much money? The increased turnover should equal increased Corporation Tax and PAYE receipts, which should easily eradicate the loss of VAT.
It is hoped that a return to tax free shopping would pave the way for some creative thinking for the hospitality sector, taking advantage of Brexit with a reduced rate of VAT.
Russell Nathan, Senior Partner, says:
It has been three years since the post-Brexit scrapping of VAT-free shopping for visitors outside the European Union, and the Chancellor can no longer ignore the significant damage that has been done. The UK economy and its reputation amongst tourists has suffered dramatically, as potential customers turn their sights to other European countries, such as France, where they can get more bang for their buck.
It’s not just shops that are struggling, the knock-on impacts of ‘tourist tax’ are being felt far and wide across the hospitality sector, including restaurants and hotels, as well as international airports and businesses that used to support customers with VAT refunds.
It’s time for the Chancellor to bring back VAT-free shopping and put the UK back on the map as one of the world’s go-to shopping destinations. Beyond increased sales and the number of tourist visitors, the reversal will also entice overseas retailers to invest more in the UK, which in turn will create new job opportunities across the entire supply chain.
If you would like to discuss this topic in greater detail, please contact Gerry Myton or Russell Nathan.
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