Duty Free Allowances

(asked on 17th December 2020) - View Source

Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what representations he has received from the hospitality industry on the decision to remove (a) the VAT Retail Export Scheme and (b) tax-free airside shopping.


Answered by
Kemi Badenoch Portrait
Kemi Badenoch
Minister of State (Foreign, Commonwealth and Development Office) (jointly with Department for Levelling Up, Housing and Communities)
This question was answered on 13th January 2021

HM Treasury ministers have responsibility for tax policy.

Ahead of the end of the transition period, the Government has announced the VAT and excise duty treatment of goods purchased by individuals for personal use and carried in their luggage arriving from or going overseas (passengers). The following rules will apply from 1 January 2021:

- Passengers travelling from Great Britain to any destination outside the United Kingdom (UK) will be able to purchase duty-free excise goods once they have passed security controls at ports, airports, and international rail stations.

- Personal allowances will apply to passengers entering Great Britain from a destination outside of the UK, with alcohol allowances significantly increased.

- The VAT Retail Export Scheme (RES) in Great Britain will not be extended to EU residents and will be withdrawn for all passengers.

- The concessionary treatment on tax-free sales for non-excise goods will be removed across the UK.

The Government published a consultation which ran from 11 March to 20 May. During this time the Government held a number of virtual meetings with industry stakeholders to hear their views and received 73 responses to the consultation. The Government is also continuing to meet and discuss the changes with a variety of stakeholders, including other Government departments, following the announcement of these policies.

The detailed rationale for these changes are included in the written ministerial statement and summary of responses to the recent consultation: https://questions-statements.parliament.uk/written-statements/detail/2020-09-11/hcws448 and https://www.gov.uk/government/consultations/a-consultation-on-duty-free-and-tax-free-goods-carried-by-passengers. A technical note has also been issued to stakeholders to expand on this document and to respond to issues raised by stakeholders.

The concessionary treatment on tax-free airside sales currently affects airports that fly to non-EU destinations. The extension of duty-free sales to EU bound passengers will be a significant boost to all airports in England, Scotland and Wales, including smaller regional airports which have not been able to offer duty-free to the EU before.

On 25 November the independent Office for Budget Responsibility (OBR) set out their assessment of the fiscal impact of the withdrawal of the tax-free schemes.

Factoring in a higher-than-usual elasticity of 1.9 to account for spending on luxury goods, the OBR estimate that the withdrawal of the VAT RES will result in a significant direct Exchequer saving of around £400 million per year, once passenger numbers recover from the impacts of Covid-19. Based on the 1.2 million users of the scheme who received a refund in 2019, this includes an assumption that approximately 20,000 – 30,000 fewer tourists visit Great Britain a year. That is 0.07% of the 40 million visitors to the UK in 2019.

The OBR estimate that the withdrawal of tax-free airside sales will raise approximately £170 million per year for the Exchequer, after behavioural responses are taken into account and passenger numbers recover from the impacts of Covid-19.

The OBR also looked at this package in the round when assessing the indirect impact on the economy – including the effects of extending duty-free sales – alongside the substantial support provided to the economy and retail industry.

The Government also recognises the challenges the aviation sector is facing as it recovers from the impacts of Covid-19 and has supported the sector throughout the pandemic, and continues to do so, including schemes to raise capital, flexibilities with tax bills, and financial support for employees.

This content was generated for your convenience by Parallel Parliament and does not form part of the official record.
Recent Documents related to Duty Free Allowances

1. Revenue and Customs Brief 21 (2020): withdrawal of the VAT Retail Export Scheme and the tax-free shopping concession
11/12/2020 - HM Revenue & Customs
- View source

Found: (2020): withdrawal of the VAT Retail Export Scheme and the tax-free shopping concession This brief

2. Tax-free shopping
19/10/2020 - Early Day Motions

Found: alarm at the decision to end the VAT Retail Export Scheme commonly known as Tax-free shopping at the end

3. Keep tax-free sales at airports and the VAT Retail Export Scheme
19/10/2020 - Petitions

Found: government has decided to remove the airside extra-statutory concession for tax free sales at airports and

4. A consultation on duty-free and tax-free goods carried by passengers.
11/09/2020 - HM Treasury
- View source

Found: consultation on the potential approach to duty - and tax - free relationship with the EU. March 20 20

5. A consultation on duty-free and tax-free goods carried by passengers.
11/03/2020 - HM Revenue & Customs
- View source

Found: consultation on the potential approach to duty - and tax - free relationship with the EU. March 20 20

Latest Documents
Recent Speeches related to Duty Free Allowances

1. Exiting the European Union (Excise)
03/02/2021 - Commons Chamber

1: We fully support the extension of duty-free shopping for people travelling to the EU, which is surely - Speech Link

2. Oral Answers to Questions
26/01/2021 - Commons Chamber

1: of the (a) retail and (b) aviation industries on the VAT retail export scheme and airside extra statutory - Speech Link
2: have continued to meet stakeholders, including retail and aviation representatives, following our announcement - Speech Link
3: not accept it was a mistake to scrap the VAT retail export scheme and the extra-statutory concessions, both - Speech Link

3. Oral Answers to Questions
15/09/2020 - Commons Chamber

1: as eat out to help out, the £2 billion kickstart scheme and the £9 billion job retention bonus, all of - Speech Link
2: to the furlough scheme will certainly push more people into poverty, will the Chancellor do the right thing - Speech Link
3: have meant that those on the lowest incomes have received the most support, through the temporary increase - Speech Link

4. Economic Update
11/01/2021 - Commons Chamber

1: have received Government-backed loans worth over £68 billion. Tens of billions of pounds of tax cuts - Speech Link
2: recovery.Six weeks have passed since the Chancellor last addressed this House. In that time, the - Speech Link

5. Oral Answers to Questions
27/04/2021 - Commons Chamber

1: in south Wales. I have already written to the Chancellor about the improvements that are needed for the - Speech Link
2: pandemic. He knows that his area in particular has received additional funding for capacity, and this will - Speech Link
3: as 6,000 people have died while waiting for a decision on their claims. This Government have repeatedly - Speech Link

Latest Speeches
Recent Questions related to Duty Free Allowances
1. Hospitality Industry: VAT
asked by: Mark Menzies
12/02/2021
... what recent assessment he has made of the economic effect on the hospitality sector of the reduced rate of VAT for customers and businesses in that sector.

2. Hospitality Industry: VAT
asked by: Bell Ribeiro-Addy
11/02/2021
... whether he has made an assessment of the potential the merits of extending the hospitality industry’s VAT reduction to include wine and spirit sales.

3. Hospitality Industry: VAT
asked by: Sarah Olney
26/04/2021
... if his Department will make the 12.5 per cent VAT rate on hospitality permanent.

4. Hospitality Industry: VAT
asked by: Ian Paisley
20/04/2021
... (b) alcohol and (c) non-alcoholic drinks in each month since the introduction of the reduction in VAT.

5. Hospitality Industry: VAT
asked by: Ian Paisley
20/04/2021
... whether his Department has undertaken an assessment of the effect of the reduction in VAT on the hospitality sector.

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