Businesses lobby for the return of VAT-free shopping in the UK
Businesses are once again lobbying the government to re-introduce tax-free shopping for tourists. 90 business leaders have signed a letter to the Chancellor Jeremy Hunt warning of the effects the withdrawal of the scheme in 2021 is having on the UK economy. The UK is currently the only European country not to offer VAT-free shopping for international visitors.
Prior to Brexit a VAT Retail Export Scheme was in place that enabled non-EU visitors to the UK to obtain a VAT refund on items they bought in the UK and took home with them in their luggage. However, following Brexit the government abolished the scheme instead of extending it to EU visitors as well. VAT-free shopping is however available to visitors who purchase items in stores and arrange for them to be delivered direct to their overseas addresses.
In September 2022 Kwasi Kwarteng announced that the government would introduce a new modern, digital, VAT-free shopping scheme, see our blog article for further information. However, the measure was dropped shortly afterwards when Jeremy Hunt became Chancellor of the Exchequer.
A copy of the letter is available here. The Daily Mail has launched a Scrap the Tourist Tax campaign in support of UK businesses.
It is claimed that the cost of the 20% VAT refunds would be outweighed by the benefits of encouraging more foreign visitors to the UK. Whilst the Treasury claim there would be a £2 billion cost in lost taxes if the scheme was re-introduced, research by Oxford Economics suggests there would be a £4.1 billion boost to GDP and the move would support over 78,000 jobs. This is because travellers would also spend money on hotels, restaurants, transport and entertainment.
There are also indications that removal of the scheme is negatively affecting the UK’s recovery from the pandemic. Consumer spending in the UK is currently at 64% of 2019 levels, whereas in Italy it is at 79%, Spain is at 84% and in France spending is now at 108% of 2019 levels.
The matter was also raised with the Prime Minister, Rishi Sunak, at an event with business leaders this week.