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Retailers On Collision Course With U.K. Treasury Over Abolition Of Tax-Free Shopping


A study examining the economic impact of the U.K. Treasury’s surprise decision to stop VAT-free sales to international shoppers from next January says the loss of the VAT airside concession alone will cost the British economy £2.1 billion ($2.7 billion) in GDP and put more than 19,000 jobs at risk nationally.

However the government appears to be sticking to its plans on the grounds that concerns were already raised during a consultation about extending the existing VAT refund scheme to European Union travelers in its current form. It plans to end the scheme for all visitors except where goods are shipped directly to their homes outside the U.K.

According to the new assessment from consultancy York Aviation, airports will face a crippling loss of revenue because they are so reliant on retail spending. For example, annual airside shopping sales account for 38% of total revenue at Edinburgh Airport in Scotland, and 31% at Leeds Bradford.

The report states: “U.K. airports are likely to be highly sensitive to changes in the regulatory environment around airport retailing. The government’s proposed action strikes at the centre of (their) business model.”

By absolute value, London Heathrow generates, by far, the largest retail income at around £585 million ($744 million), or around 20% of its revenue. The next biggest gateways for retail are London Gatwick and Manchester, generating around £191 million (24% of revenue) and £97 million (21% of revenue) respectively.

A three-month window

Airport only have three months to find alternative sources for the lost revenue—at a time when air traffic is still heavily down right across Europe, despite some slight improvement earlier this summer. But with a second Covid-19 spike ramping up infection rates, travel may not be on the agenda for many as winter approaches.

Henry Smith, Conservative Party MP for Crawley—where London Gatwick Airport is located—described the government plan to remove VAT refunds for overseas visitors as “ill-considered.” He said: “With our airports battling a challenge unimaginable only a year ago, the government must reverse this decision without delay. Aviation is vital to our long-term national economic recovery… and measures like this will only delay and threaten that recovery.”

The duty-free and travel-retail lobby group UKTRF which commissioned the York Aviation study, is also calling for the government to reconsider what it believes is the result of “mis-briefed ministers.”

In a statement, the association said: “The unexpected move negates the benefits of the Treasury decision to extend duty-free sales on alcohol and tobacco for travellers to the EU post-Brexit. In addition to unfairly increasing the cost of airside shopping for items such as perfumes, cosmetics and confectionery for British passengers traveling abroad, the policy is out of touch with international standards.”

Are outdated systems to blame?

The Association of International Retail (AIR) says that one reason the U.K. government is dropping tax-free shopping is that the current paper-based validation system used by the tax department, HMRC, would not be able to manage VAT refunds once they become available to EU tourists from January. EU travelers account for 70% of all U.K. visitors.

Forbes.com put this point to HMRC and the Treasury but neither addressed it directly. Commenting instead on the anger of so many retailers and airport operators, a Treasury spokesperson told us: “We recognise the challenges these businesses face, which is why we’ve provided a wide range of support throughout this pandemic, including a 100% business rates holiday worth over £10 billion, VAT deferrals, protections against evictions and cash grants of up to £25,000 for eligible firms.”

The spokesperson added: “We’re making use of the end of the transition period to bring our personal duty and tax systems in line with international norms. VAT-free shopping is still available because retailers are able to offer it to overseas visitors who purchase items in store and have them sent directly to their overseas addresses.”

AIR’s CEO Paul Barnes believes that a way forward could be through a cooperative stance. “Government should use the 18-month window of low international visitor numbers (due to Covid-19) to work with retailers and their partners to provide a digital solution to the validation element,” he said. “Linked to existing retailer digital infrastructure, this will provide the necessary capacity within 12 months and at no cost to government. Retailers have done this with many governments around the world.”



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