In a surprise move the Treasury have announced that the Retail Export Scheme will be withdrawn from non-EU visitors and will not be extended to EU visitors as from 1st January 2021.

The scheme allows non-EU visitors to the UK to purchase goods (for personal use) to take home with them in baggage and then claim a VAT refund when the goods have left the EU. The government have retained the VAT relief in cases where retailers ship the goods direct to the customer’s home address however this is likely to have further costs and is unlikely to be an appealing option.

The withdrawal of the scheme is a result of a government consultation which looked at duty free and tax free goods carried by passengers. The report came to three main conclusions:

• VAT should be paid in the country of consumption,
• The scheme was at risk of fraud and non-compliance and
• The scheme did not benefit the whole of the GB equally as most of these purchases were in London and Bicester Village.

It was expected that the scheme would be modified to include EU customers after Brexit but the withdrawal of the scheme is a shock which will have ramifications for the tourism and retail sector. This is likely to make the UK a less attractive option for tourists who may decide to sample the delights of other European nations instead which will still have the scheme. In 2018 overseas tourists spent £23 billion in the UK and a tenth of this relates to tax-free sales so anything which has a detrimental effect on encouraging tourism is of serious concern especially in the context of Covid and Brexit issues.

This unforeseen change signifies how we should all be prepared for changes in the VAT system in the coming months. This may be a taster of very large changes to come!