Petition Keep tax-free sales at airports and the VAT Retail Export Scheme

Government responded

This response was given on 16 December 2020

Visitors can shop VAT-free when purchases are sent directly to overseas addresses. The withdrawal of the tax-free schemes is part of a package of changes, with significant benefits for UK consumers.

The VAT Retail Export Scheme and tax-free sales at airports largely provide “tax-free perks” to overseas visitors.

The Government’s passenger policy, after the end of the Transition Period, provides UK consumers with significant benefits.

To remain compliant with World Trade Organisation (WTO) rules following the transition period, the UK’s VAT and excise rules will no longer be able to treat individuals carrying goods for personal use (passengers) to/from the EU, differently to those travelling to/from non-EU countries.

The Government published a consultation, which ran from 11 March to 20 May 2020. The Government held virtual meetings with stakeholders to hear their views and received 73 responses to the consultation. The detailed rationale for these changes are included in the written ministerial statement and summary of responses to the consultation: https://questions-statements.parliament.uk/written-statements/detail/2020-09-11/hcws448 and https://www.gov.uk/government/consultations/a-consultation-on-duty-free-and-tax-free-goods-carried-by-passengers.

For the first time in over 20 years, the Government is providing duty-free sales for passengers travelling from Great Britain (GB) to the EU (approximately 67m UK passenger journeys in 2019). This also boosts regional airports, which primarily rely on EU travel. Extending duty-free to EU-bound passengers will significantly increase the cost of the scheme as many more people travel to the EU than non-EU destinations.

The Government has also roughly quadrupled alcohol allowances for passengers arriving in GB – introducing one of the most generous alcohol allowances in the world. This will benefit a significant number of UK residents a year by allowing them to bring into GB, for example, three crates of beer, two cases of wine and one case of Champagne for personal use, without having to pay the relevant taxes – a saving of up to £120 of UK excise duty.

Alongside these benefits to UK residents, the Government is withdrawing the VAT Retail Export Scheme (RES) and tax-free airside sales, which largely benefit overseas visitors.

On 25 November the independent Office for Budget Responsibility (OBR) set out its assessment of the fiscal impact of the withdrawal of the VAT RES and tax-free airside sales. The OBR estimates that the withdrawal of the VAT RES will result in a significant direct saving of around £400 million per year to the taxpayer, once passenger numbers recover from the impacts of Covid-19.

This includes an assumption that approximately 20,000 – 30,000 fewer tourists visit GB a year, based on the 1.2 million users of the scheme in 2019 (less than one-in-ten of all eligible visitors). That is a reduction of 0.07% of the 40 million visitors to the UK in 2019.

The OBR does not, by convention, cost alternative policies to those adopted by the Government – in this case, extension to EU residents – but the Government’s view is that this would have resulted in a large deadweight loss by subsidising spending from EU visitors, which already happens without the VAT RES in place.

Again, the choice for tax-free sales was between removing the scheme or extending it to EU-bound passengers. Extending the relief to the EU would significantly increase the cost of the scheme and result again in a large deadweight loss by subsidising spending from EU-bound passengers which already happens.

The OBR estimates that the withdrawal of tax-free airside sales will result in a saving of around £170 million per year, after behavioural responses are taken into account and passenger numbers recover from the impacts of Covid-19.

The Government recognises the challenging circumstances facing the aviation industry as a result of Covid-19. On 24 November the Government announced a package of financial support for commercial airports and ground handlers. This support, which will shore up jobs and reinforce local economies, will be equivalent to the business rates liabilities of each business, capped at £8 million per site, and subject to certain conditions. This scheme will open in the New Year.

This builds on the Chancellor’s announcement on 5 November that the Coronavirus Job Retention Scheme will be extended until March 2021, with employees receiving 80% of their usual salary for hours not worked, up to a maximum of £2,500 per month. The Bounce Back Loan Scheme has also been extended to help small businesses during the Covid-19 outbreak. These measures will continue to protect jobs and businesses across the UK.

HM Treasury