Sep 23, 2022
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UK to launch VAT-free shopping for all overseas tourists as mini-budget is unveiled

Sep 23, 2022

In what has been called a ‘mini budget’, the UK government on Friday not only said that it would bring back VAT-free shopping for overseas tourists coming to Britain but that it would be a better system than the one abolished just over a year ago.

Photo: Pixabay/Public domain

The government said Britain will introduce sales tax-free shopping for overseas visitors to boost the retail sector.

There were few details available but Chancellor Kwasi Kwarteng’s exact words were: “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. So we have decided to introduce VAT-free shopping for overseas visitors. We will replace the old paper-based system with a modern, digital one. And this will be in place as soon as possible. This is a priority for our great British retailers – so it is our priority too.”

But there have been suggestions it might not happen until 2024 due to the complexities of setting up a digital system.

The ability of non-EU tourists to claim back the 20% VAT at the airport was a key attraction drawing them to Britain when they were mulling where to shop in Europe. That was before the previous Conservative administration all-but-abolished the perk at the start of 2021 as it sought to claw back the billions it had paid out in Covid support. 

But the old paper-based system was cumbersome and in need of updating. Companies specialising in facilitating tax-free shopping for visitors had been pushing for a digital system for years and it looks like this will now happen. 

The Chancellor mentioning high streets and shopping centres also hints that the new system could be more expansive than the old.

Dee Corsi, Interim CEO at New West End Company, said of the change: “Today's decision to reintroduce tax-free shopping for overseas visitors is a great victory for London's International Centres. Now the West End can compete on a level playing field with Paris, Milan and Madrid as one of the world's top shopping and leisure destinations. In 2019 international visitors contributed over £28 billion to the UK economy. The government's announcement is great news and – with new exciting new brands expected across the West End following today's announcement that newly opened businesses will not be subject to business rates – we are confident that we can exceed this figure in the years to come.”

One key benefit of Friday’s announcement is to expand the perk to EU visitors, something that would be likely to spur a tourism wave from Europe. The UK has lost many non-EU shoppers to cities like Paris and Milan where tax-free shopping was available and these are now likely to come back. But European tourists could also be more likely to visit as Britain will be the only European country where they can claim back the VAT on their purchases.

Paul Barnes, Chief Executive of the Association of International Retail, said: “It allows us to compete equally with our European neighbours to attract high spending international visitors back to our shops, hotels and restaurants. Today's news brings with it a huge new tourist market of over 440 million people from the EU – now that Britain is the only country in Europe where EU visitors can shop tax-free – which will be a significant shot in the arm to our retail, hospitality and tourism sectors across the country, with regional airports set to benefit from a surge in their visitor economies.”

Other news that will please business includes scrapping the planned rises in corporation tax and national insurance, as well as an earlier-than-planned cut in the basic rate of income tax. 

But while that will delight retailers, there was still no news on fundamental changes to business rates for existing businesses. 

John Webber, Head of Business Rates at property specialist Colliers said: “It’s disappointing that while today’s ‘tax-cutting' mini budget addressed issues such as income tax, corporation tax, NI and stamp duty, the ‘elephant in the room’ — business rates — was largely ignored, despite the impact that ultra-high rates bills have had on businesses in recent years.

Business rates is one of the highest outgoings for occupiers of property. The tax raises around £32 billion a year gross (£26 billion net) and with rates rising in line with CPI inflation levels for September, predicted to be around 10%, this could potentially add a further £3 billion to the tax bill if nothing is done.

With just six months to go before the next revaluation, businesses still have no idea what their rateable values will be, what the multiplier will be nor how the government will response to its summer consultation on transitional relief.”

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