Potential disaster as UK Treasury axes tax free sales on other categories while confirming return of duty free sales to EU-bound travellers

UK. Travellers departing England, Scotland and Wales for EU countries will be able to purchase duty free goods from 1 January 2021, the government confirmed today. But it also announced that tax free sales will be withdrawn for all outbound passengers from 1 January 2021 on goods other than liquor & tobacco (reaction below). [Note: Northern Ireland’s relationship with the EU is covered by a separate agreement to the rest of the UK. It is still uncertain as to whether UK or EU VAT & Excise duty legislation will apply.]

The return to a duty free regime, said the UK Treasury in a statement, would “bring our approach to the EU in line with the rest of the world.” As reported, the UK will be treated as a ‘third country’ once the transition period for its departure from the EU ends on 31 December.

The Treasury explained that passengers will be able to buy duty free alcohol and tobacco products, where available, in UK ports, airports and international train stations, and aboard ships, trains and planes.

The UK prepares to become a third country, with a return to duty free shopping for EU-bound travellers among the outcomes

However, as noted above, the government is also ending tax free sales in airports of goods such as electronics and clothing for passengers travelling to non-EU countries. It said that this “follows concerns that the tax concession is not always passed on to consumers in the airport. In some instances these tax free goods are brought back into the country by UK residents, putting high street retailers at a disadvantage,” added the Treasury.

That decision has prompted “grave disappointment and dismay” among members of the UK Travel Retail Forum.

The industry body said that the decision will cut billions of pounds from the UK aviation sector, and put thousands of jobs at risk, at a time when the industry is struggling to recover from the COVID-19 outbreak.

Speaking on behalf of UKTRF members, Chair Francois Bourienne said: “This decision puts the UK out of step with travel retail systems around the world, completely disincentivises tourists to visit the UK and British passengers making purchases as they go on vacation abroad, and puts UK airports and travel retail at a substantial disadvantage against their European counterparts after Brexit. This will lead to significant additional job losses in the travel industry.

“It may well be the best gift the UK could have given the EU as well as a massive blow for UK plc. In the more immediate term, this announcement deals a hammer blow to an industry already struggling with the devastating impact of the COVID outbreak. Retailer and airport revenue will suffer, but jobs and livelihoods will almost certainly be put at risk.

“While we are grateful for the government’s move to extend duty free sales to passengers travelling from the UK to the EU, we are extremely concerned that ministers have not fully appreciated the impact this decision will have on the wider travel retail and aviation sectors.

“We urge the government to immediately review its decision and act swiftly to ensure jobs, businesses and Britain’s place as a premier travel hub are not lost.”

End to VAT Refund scheme

Also, as part of the changes, VAT refunds for overseas visitors in UK shops will be removed. Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses, but what the Treasury termed “the costly system of claiming VAT refunds on items they take home in their luggage” will be ended.

The new rules follow a consultation with industry on the government approach to taxing goods carried across borders for personal use from January 2021. As reported, the UK Travel Retail Forum and ETRC have also called for the introduction of arrivals duty free shopping in the UK and European states.

UK allowances for travellers arriving from non-EU states will increase, and those for EU travellers brought in line to reflect the UK’s third country status.

The amount that passengers can bring back with them from non-EU countries will also be increased, and extended to EU countries, said the Treasury.

Passengers coming to Britain can take in 42 litres of beer, 18 litres of still wine and four litres of spirits OR nine litres of sparkling wine, fortified wine or any alcoholic beverage less than 22% ABV, without paying UK duties.

Tobacco allowances will be:

  • 200 cigarettes OR
  • 100 cigarillos OR
  • 50 cigars OR
  • 250g tobacco OR
  • 200 sticks of tobacco for heating
  • or any proportional combination of the above

Background

The UK exited the European Union on 31 January, although there was no immediate return for duty free sales between the UK and EU.

The UK entered a transition period and began negotiations over its future relationship with the EU. During this period, which will run until 31 December, it was agreed that there would be no changes to trading rules, and the UK will stay in the single market and the customs union.

As we reported in January, if the UK leaves without a deal in December, it becomes a third country destination, meaning that EU single market rules no longer apply and duty free sales would return for travellers in both directions.

Industry lobbyists had hoped that an agreement that incorporates future duty free arrangements could (and might still) be agreed as part of a wider reciprocal trade deal. But after a fraught week in UK-EU relations (with the UK government announcing plans to override parts of the Withdrawal Agreement), that looks uncertain at best.

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