Business minister Nigel Huddleston has asked businesses hurt by the decision to scrap VAT-free shopping for overseas tourists to supply him with evidence.
The Treasury scrapped VAT-free shopping for overseas visitors in December 2020, during the pandemic. Former Chancellor Kwasi Kwarteng then restored VAT-free in his disastrous September 2022 mini-Budget.
Figures by Oxford Economics, commissioned by the Association of International Retail, concluded that rather than costing £2bn a year, as the Treasury had estimated, reinstating tax-free shopping would result in a net gain in taxes of about £350m each year once the full impact is taken into account.
Furthermore, restoring VAT-free shopping would boost the economy by £21bn over five years. It would inject £4.1bn each year into the economy and supports 78,000 jobs, experts claim.
Rishi Sunak, however, argues that VAT-free shopping costs the Government billions in lost revenue and benefits only “a very small group of wealthy travellers who are coming predominantly to just central London”.
What is the VAT threshold? – At what point does your small business have to start paying VAT? Should you voluntarily pay VAT? And what are legitimate ways to stay under the VAT threshold?
Yet experts estimate there would be a net gain of around £350m a year if VAT-free shopping was restored because of the trickle-down benefits of tourists spending across the country and more widely on hotels, restaurants and attractions.
Being able to scrap VAT for all overseas customers, including EU residents, as well as those from China, the Middle East and the US, was seen by retailers as a key Brexit benefit, giving UK plc a leg-up over rivals.
Since then, companies including Selfridges, Burberry and The Ritz, along with luxury goods trade body Walpole, have made fresh calls to restore tax-free shopping.
Sole traders increasingly avoid charging VAT – Tens of thousands of small businesses deliberately stay small to avoid charging VAT, which means you have to hike prices if you wander over the £85,000 threshold
They warn that London is losing tourism to cities such as Paris and Milan.
Mr Huddleston told LBC Radio that Chancellor Jeremy Hunt would consider restoring VAT tax-free shopping in his next autumn statement.
He stressed, however, that the Chancellor’s decision would be based on the need to balance raising funds to pay for public services and encouraging tourism.
Mr Huddleston told listeners: “The appeal is please give us the data and the information and then that will help inform our decision-making.”
Michael Ward, managing director of Harrods, seemed exasperated when he spoke to The Times about the Oxford Economics research.
“We commissioned the piece of work by Oxford Economics which clearly showed there was a benefit to the UK economy as a consequence of tax-free shopping,” Ward said. “Asking us for more figures when we’ve employed an external consultant is a bit, ‘haven’t really read my papers’.”
If your business has been affected by the scrapping of VAT-free shopping, you can send evidence to Nigel Huddleston MP here
Further reading
Hunt scraps VAT-free shopping and presses on with IR35 reforms – Chancellor Jeremy Hunt reverses nearly all of Kwasi Kwarteng’s tax cuts, loading billions onto bills of small business owners
