The UK government has recently announced plans to implement VAT-free shopping for all overseas tourists, dubbing it a “mini-budget.” The purpose behind this move, according to Chancellor Kwasi Kwarteng, is to give a much-needed boost to the retail sector and ensure that various establishments such as high streets, airports, ports, and shopping centers can reap the economic benefits of welcoming millions of tourists annually.
Although specific details are still limited, Kwarteng shared that the outdated paper-based system will be replaced with a modern, digital solution as soon as possible. However, there are concerns about the feasibility of implementing this new digital system, with some suggesting that it may not be fully functional until 2024.
Previously, the ability for non-EU tourists to reclaim 20% VAT at the airport was a major incentive for shoppers considering where to shop in Europe. However, the previous Conservative administration mostly eliminated this perk at the start of 2021 in order to recoup funds allocated for COVID-19 support. The old paper-based system sorely needed an update, and companies facilitating tax-free shopping for visitors had long championed the adoption of a digital solution. It seems that their efforts have paid off, as the new system is expected to be more efficient and less burdensome.
The Chancellor’s mention of high streets and shopping centers suggests that the new VAT-free shopping system may be more far-reaching than its predecessor. This presents an opportunity for the UK to compete with shopping destinations like Paris, Milan, and Madrid, positioning itself as a leading international shopping and leisure hub. Prior to the pandemic, international visitors contributed over £28 billion to the UK economy in 2019. The reintroduction of tax-free shopping for overseas visitors, coupled with the exemption of newly opened businesses from business rates, is projected to surpass this figure and bring about significant economic benefits in the years ahead.
An important advantage of this announcement is that it extends the benefit to EU visitors as well. This expansion is expected to entice a wave of tourism from Europe, as the UK will be the only European country where EU visitors can reclaim VAT on their purchases. This is likely to attract European tourists who may have previously chosen other European cities for tax-free shopping to once again make the UK their shopping destination.
Paul Barnes, Chief Executive of the Association of International Retail, believes that this development will level the playing field for the UK, attracting high-spending international visitors to shops, hotels, and restaurants. The EU’s tourist market, consisting of over 440 million people, now has a unique opportunity to enjoy tax-free shopping in the UK, providing a significant boost to the retail, hospitality, and tourism sectors throughout the country. Additionally, regional airports can anticipate benefiting from the influx of visitors resulting from this initiative.
Apart from VAT-free shopping for overseas tourists, the mini-budget also encompasses other measures likely to please businesses. These include canceling scheduled increases in corporation tax and national insurance, as well as an earlier-than-planned reduction in the basic rate of income tax. However, there is still no information regarding fundamental changes to business rates for existing businesses, which remains a concern. The implications of high rate bills in recent years have been considerable, and the lack of clarity on rateable values, multipliers, and the government’s response to the summer consultation on transitional relief is causing uncertainty for businesses.
Overall, the reintroduction of VAT-free shopping for all overseas tourists is a significant step by the UK government to revitalize the retail sector and attract international visitors. The new digital system is expected to simplify the process and make it more appealing to tourists. With the added benefit of including EU visitors, the UK has the opportunity to establish itself as a premier shopping destination in Europe, making substantial contributions to the economy and supporting businesses across the country. However, further attention is needed to address concerns related to business rates and provide clarity for existing businesses.
Useful links:
1. Government guidance on business rates
2. Travel guide for the United Kingdom
