Posted on 1st October 2022.

The UK government plans to re-introduce VAT-free shopping for international visitors, almost two years after the tax break was controversially scrapped. The luxury and retail sectors — which have been lobbying hard for the reversal — welcome the move, saying it would boost business growth and create jobs.

It will be one of the first major business policy shakeups under new UK prime minister Liz Truss, who took over from Boris Johnson on 6 September.

“Britain welcomes millions of tourists every year, and I want our high streets and airports, our ports and our shopping centres, to feel the economic benefit,” said chancellor Kwasi Kwarteng, addressing the House of Commons on Friday.

Kwarteng said the government plans to introduce a “modern, digital, VAT-free” shopping scheme, which will enable tourists to once again obtain a VAT refund paid on goods bought on the high street and at airports in England, Scotland and Wales. The new scheme will cost £1.27 billion in its first year (expected to be 2024-25), according to the Treasury’s forecasts. The existing separate scheme in Northern Ireland will also be modernised, under the government’s proposal.

Kwarteng’s predecessor, Rishi Sunak, decided to scrap VAT-free shopping in 2020, claiming it was a “costly relief” that mainly benefited London, and was vulnerable to fraud. The CEOs of some of the UK’s biggest brands and retailers, including Harrods and Selfridges, wrote to Sunak expressing concern that it would put London at a competitive disadvantage to cities like Milan and Paris, and reduce the number of tourists visiting the UK. But, the changes still came into effect in January 2021.

Luxury membership body Walpole released a report in May, which found that the UK could reach retail sales of £1.2 billion and attract an additional 600,000 tourists if it reintroduced the tax-free shopping scheme. Luxury tourism contributes approximately £30 billion to the UK economy, it added. Organisations including the Association of International Retail and the New West End Company have also campaigned against the removal of the scheme.

“[The luxury tourism sector] supports a wide ecosystem of manufacturers, retailers, cultural institutions, hotels and restaurants based in all corners of the UK. [The reintroduction of VAT-free shopping] is a hugely welcome measure which will ensure the future of many small businesses and create jobs across the whole of the UK,” said Walpole CEO Helen Brocklebank in a statement. “I am delighted that the chancellor has listened to the voices of business and the sector, which have spent several years highlighting the need for tax competitiveness with other European countries who have similar schemes.”

Source: Vogue Business