UK VAT rebate for international tourists to be scrapped

UK: The VAT Retail Export Scheme (VAT RES) is to be abolished on 31 December when the Brexit transition period ends, meaning that from next year a VAT refund will not be available as tourists leave the country.

Under the VAT RES, overseas travellers to the UK can claim a VAT refund on goods purchased but not consumed in the country.

The scheme benefits businesses in tourist-heavy areas such as London’s West End and Edinburgh, as well as other retail centres such as Bicester shopping village in Oxfordshire.

The Treasury has recently announced that it is going to withdraw the existing relief for international visitors in British shops from January 2021. This would mean the UK is the only country in Europe not to offer tax-free shopping.

Jace Tyrell, chief executive of the New West End Company, which represents 600 businesses across Bond Street, Oxford Street and Regent Street in London, described the decision as a “blow to the UK economy”.

According to the group’s calculations, abolishing the scheme would change a £2.1 billion tax-free shopping bonus from the UK’s departure from the EU into a £3.5 billion loss of tax-free sales. Overall, this accounts for a £5.6 billion hit on the UK economy.

Commenting on the decision, the Treasury noted that overseas visitors will still be able to buy items VAT-free in store and have them shipped home.

However, Joss Croft, chief executive of UKinbound, said it’s “another nail in the coffin of global Britain” and that it will “reduce our global competitiveness.”

In the latest inbound outlook for the UK, Visit Britain expects a decline of 73 per cent in visits and a decline of 79 per cent in spending (as of 25 August). Compared to pre-Covid levels where spending was forecasted at £24 billion, this now represents a whopping loss of £18 billion in spending for 2020. 

The rippling effect that the VAT RES abolition will have on hotels, restaurants and other cultural attractions will be devastating in the wake of Covid.

A letter has been sent to the chancellor, co-signed by firms such as the Association of International Retail (AIR), Mulberry, Selfridges and Heathrow, urging the government to readdress the decision which puts 70,000 jobs at risk.

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