The UK Government confirmed in September 2020 that the VAT Retail Export Scheme (VAT RES) will be withdrawn from 1 January 2021, when the Brexit transition period will end. The implications of this decision are summarised here.
What Is The VAT RES?
Under the VAT RES, travellers bound for destinations outside of the EU can purchase certain items from various UK retailers free from 20% value-added tax, provided that they are not consumed in the UK and are "exported" from the UK or EU within three months of purchase.
Goods subject to excise duties are specifically excluded from the VAT RES.
Why Is The UK Curtailing The Scheme?
The Government intends to scrap the VAT RES as soon as the Brexit transition period ends. This is because, under World Trade Organisation rules, the UK will be obligated to offer the scheme to individuals travelling to EU countries, too. This, the Government argues, would increase the cost of the scheme considerably. It also considers that the impact on the industry will be low.
What Will The Changes Mean?
In addition, the Government has announced that excise goods purchased beyond security controls at airports, ports and international rail stations will be duty-free from 1 January 2021.
Travellers can also purchase items duty-free on board aircraft, ships and international trains.
However, travellers returning to the UK from EU countries will no longer be permitted to bring unlimited amounts of duty-free alcohol, tobacco, and other products into the UK for personal use. Present restrictions for non-EU imports will apply to imports from the EU, but the allowance for alcohol will be increased.
Could The Government Change Its Mind?
The retail sector has warned that the move could severely dent the UK's appeal as a shopping destination and potentially cost 41,000 jobs.
Furthermore, the Association of International Retail (AIR) has taken issue with the UK Treasury's estimate that extending the scheme to EU visitors after the end of the Brexit transition period would cost an extra GBP900m, pointing out that EU travellers tend to spend less than non-EU travellers.
The AIR also thinks that the Government may have interpreted the WTO rules too narrowly, and recommended that the UK Government seek a two-year transitional period during which it would be allowed to extend the VAT RES.
It remains to be seen whether the Government will respond to feedback from the retail sector. As matters stand, the VAT RES will disappear from 1 January.