HM Treasury has announced major changes to the rules for tax-free shopping at airports, and VAT refunds for visitors from outside the EU, that retailers fear could make the UK uncompetitive against European neighbours.
An announcement on the Government’s website mainly focuses on offering duty free shopping to all EU citizens from January 1, 2021. It predicts that booze and fags will be cheaper when travellers are buying them in airports.
Much more troubling to retailers of luxury goods like watches is that VAT refunds for overseas visitors will be stopped unless the goods are dispatched directly to their home countries.
This replaces the current system where visitors from outside the EU can instantly claim back VAT at the airport, as long as they produce the goods, proof of identity, receipts and a completed tax-free form.
The Treasury describes the new rules as an improvement that will not make the UK less competitive because VAT can be removed at the point of purchase. “Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses, while the costly system of claiming VAT refunds on items they take home in their luggage will be ended,” it says.
However, retailers see trouble ahead. Simon Walton, managing director of Berry’s, which has showrooms in Chinese tourist hot spots of York and Windsor, tells WatchPro: “Berry’s were surprised to read about the changes to the VAT tourist scheme and didn’t see any changes coming. It could have a huge impact on the luxury tourist business in the UK and, as we have shops in York and Windsor, we will be greatly impacted with this.”
Mr Walton fears that the plan to let tourists save VAT at the point of purchase will not work if they cannot take their new watches with them.
“Not all tourists will want the items dispatched,” he predicts. “Chinese tourists don’t want items shipped as they have to pay high import duties that makes any tax saving ineffective,” he adds.
He says he is prepared to lobby Members of Parliament to get the new rules reversed.
“If Covid and Brexit weren’t challenging enough, this is a major concern for any retailer who enjoys a tourist business. I am hoping the government finds an alternative solution but if not we will be lobbying our local MPs in those cities to see if this system can be reinstated. I suggest the industry joins together to tell the government the catastrophic effect it will have on jobs and the taxes we pay to the government as a result of these changes,” Mr Walton insists.
Luxury retail at airports will be affected by another change to the rules that ends tax-free sales for a range of goods likely to include watches, although not specified in the government’s announcement.
“We are ending tax-free sales in airports of goods such as electronics and clothing for passengers travelling to non-EU countries following 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,” HM Treasury states.
Retailers including The Watches of Switzerland Group have invested heavily in air-side boutiques in recent years.
This measure addresses an issue that has generated negative headlines in the past because in-airport retailers were not passing on the VAT savings to customers, even though they could claim it back from the Treasury.
The controversy related mostly to low-value purchases because the higher the price, the more likely customers would be well-informed about their rights. There will need to be clarification on whether the withdrawal of tax-free shopping will be applied across all goods.
Francois Bourienne, chief commercial officer for AGS Airports, owner of Aberdeen, Glasgow and Southampton Airports, is lobbying for a U-turn from the Westminster government.
“Chinese and American tourists cannot anymore buy tax-free products on Edinburgh Royal Mile or the nice souvenir shops in Inverness and Stirling. For Chinese tourists it also means they cannot shop tax-free luxury goods in Harrods, Burberry [or] Selfridges in London, or Louis Vuitton, Harvey Nichols, in Edinburgh. We know that buying tax free luxury items is a big draw for them so in addition to the difficulty to get a visa to visit the UK, the abolition of tax free shopping is a post-Brexit gift from the UK to Paris, Milan, Rome, Amsterdam. Chinese tourists are smart and will go there instead,” he predicts.
Global Blue, a specialist in helping tourists reclaim their VAT, says its service is currently available in Argentina, Austria, Bahamas, Belgium, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Kazakhstan, Korea, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Morocco, Netherlands, Norway, Poland, Portugal, Russia, Serbia, Singapore, Slovenia, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom and Uruguay.