Retailers hope for return of tax-free shopping for tourists by May

The UK duty free rebate, which was scrapped in 2020, is coming back on a digital platform

A shopper carries a shopping bag outside Harrods luxury department store on April 22, 2022 in London, England. Hollie Adams / Getty Images)
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Retailers are hoping to have tax-free shopping for visitors reinstated in the UK in time for King Charles III’s coronation on May 6 next year.

Tax-free shopping was abolished for tourists on New Year’s Eve in 2020 due to the costs of maintaining the rebate post-Brexit, said experts.

That made the UK the only country in Europe not to offer such a scheme.

But the rebate is set to return, after Chancellor Kwasi Kwarteng announced its reinstatement in September’s mini budget.

No time frame was given by the government at the time.

The previous system was paper-based but the Treasury has said the new one will be entirely digital, mitigating the risks of fraud and abuse.

It plans to launch a consultation “shortly” to gather views on the approach and design of the scheme, which will be implemented soon after, it said.

The news has been welcomed by the industry, which campaigned against its removal and has lobbied for its return. But it has cautioned it should not take too long to implement.

Paul Barnes, chief executive of the Association of International Retail, said its removal was “devastating” to the industry.

He said he hopes the new system will be set up as soon as possible, ideally within months.

“The government absolutely rightly says the new system must be fully digitalised, as happens in most countries,” said Mr Barnes.

“Now, they have got in their forecasts that this will take them two years. In the growth plan, their forecasts show the tax-free shopping kicking in 2024 and 2025. And that’s because of the need to digitise, which they think will take two years.

A man draped in a Union Jack flag looks around in a souvenir shop in London. AFP

“We are saying it is possible to do it quicker than that. The tax-free shopping industry is offering to put in a fully digital system, at no cost to the government, within six to nine months.”

In an “ideal world” he hopes tax-free shopping will be back in time for King Charles's coronation on May 6.

And the industry wants to fund the system to speed up its implementation.

The government first announced plans to digitise the tax-free shopping scheme in 2010, in time for the Olympics, he said.

But by the time it was abolished in 2020 it “was still consulting” on the plans.

“What we are saying to government is, we don’t even think you will do the two years, if you go down the same route as before. You were 10 years and you are still consulting. So that route is not the route to go,” said Mr Barnes.

“You should work with industry, as almost every other country in the world has done. About two thirds of tax-free shopping systems digitised are done by the industry — not by government. Including the UAE. It managed to get its set up in about three months.”

Experts say the UK has missed out to other destinations in Europe since the rebate was abolished.

A 2019 study by Global Blue said 93 per cent of international travellers said they would be less likely to shop in the UK if they could not reclaim their tax, visiting France and Italy instead.

And a recent VisitBritain survey from earlier this year found 27 per cent of respondents in Saudi Arabia and the UAE said they would go elsewhere due to the end of the scheme.

Visitors from the GCC previously made up 26 per cent of Britain’s tax-free spending, according to Walpole, a sector body for UK luxury brands.

Walpole's chief executive, Helen Brocklebank, said the return of tax-free shopping is “hugely welcome”.

“The luxury tourism sector makes a significant £30 billion contribution to the UK economy, and supports a wide ecosystem of manufacturers, retailers, cultural institutions, hotels and restaurants based in all corners of the United Kingdom,” she said.

“This is a hugely welcome measure which will ensure the future of many small businesses and create jobs across the whole of the UK.

“I am delighted that the Chancellor has listened to the voices of business and the sector which have spent several years highlighting the need for tax competitiveness with other European countries who have similar schemes. We will now be working closely with the government in order to ensure that the scheme brings the maximum possible benefits to the UK, and that it is as simple as possible for tourists and businesses alike.”

Updated: October 15, 2022, 10:21 AM
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