The VAT Retail Export Scheme to end

In a blow to UK retailers, HMRC has announced that from 1 January 2021, the VAT Retail Export Scheme will cease to be valid in the UK.

Impacting retailers which rely on tourist trade 

Under the current scheme, non-EU based visitors to the UK can reclaim their VAT when the goods are exported (normally within a customer’s luggage). The visitor presents a VAT receipt and a claim form at the airport desk in order to receive a refund of the VAT paid.

HMRC has announced this as part of a news alert regarding the extension of the duty free to EU travellers from 1 January 2021. However, the following paragraph in the news alert also details the impact on the retail export scheme:

VAT Retail Export Scheme.  As part of these changes, VAT refunds for overseas visitors in British shops will be removed.  Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses, while the costly system of claiming VAT refunds on items they take home in their luggage will be ended.

Our retail experts consider that this will have a big impact on the sector especially when retail businesses are struggling with reduced foot fall due to Covid-19.

The suggestion that visitors can still obtain VAT free goods if the retailer arranges shipping to their home address has the following additional implications:

  • Increased cost of shipping the goods to the customer including the related handling and storage.
  • Additional cost of insuring the goods, especially if they are high value.
  • Inconvenience for customers who may want to use a purchased item before they leave the UK.
  • No clarity on whether customers will be due to pay import duties and taxes when the goods arrive in their home country.
  • The impact could be to encourage customers to buy goods online rather than visiting the retail store or travel to the UK.

The link to the full news story is here:

There is no indication at present that the retail export scheme (which is an EU based measure) will be replaced by a UK only version.

Get in touch

If you would like to discuss this change, please contact us and we will put you in touch with a colleague from the indirect tax team.