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VAT: The end of duty-free shopping in the UK

Posted on 28 May 2021

The VAT Retail Export Scheme used to allow overseas visitors buying certain goods in person in the UK to receive a refund of any VAT paid on those goods. To benefit from this effective tax saving of up to 20%, they broadly had to export the goods outside the UK or EU within three months, and obtain certain forms and evidence. 

As announced in September 2020, the Scheme was abolished on 1 January 2021.

In November 2020, London Heathrow Airport and others applied for a judicial review of the decision to abolish the Scheme, which was heard on 22 February 2021. The claimants argued that HM Treasury:

  • erred in law when it decided the extra statutory concession on goods at duty-free and tax-free shops in Britain could not be maintained or amended;
  • erred when it concluded that continuing the Scheme would violate World Trade Organization rules; and
  • acted irrationally by failing to take into account the billions of pounds in spending that tax-free tourist shopping generates across the country and other economic benefits.

HM Treasury contended that:

  • the claimants could not meet the required threshold of proving that the decision was “absurd” in order to get a judicial review;
  • the expert Treasury officials might not have quantified the economic implications, but took them into account; and
  • there was “undeniable uncertainty” over the potential drop in tourist numbers and decreased spending as a result of the abolition.

Separately, the luxury goods industry has applied pressure on the Government to reverse the abolition. A gov.uk petition called 'Keep tax-free sales at airports and the VAT Retail Export Scheme' closed on 28 April 2021 with 12,664 signatures. In response to the survey, the Government stated:

"…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."

Despite this opposition, Heathrow's challenge failed. On 21 May, the High Court held that the Government's approach to evidence collection "was justified and rational in the circumstances." The Court concluded that, “none of the [claimants’] grounds succeed and accordingly the appeal seeking permission to seek judicial review, the claim for judicial review and all associated applications, fail.”

Unsurprisingly, the industry's reaction has been negative. However, it appears the Government's resolve is unwavering, and it is doubtful the Scheme will be revived.

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