Sarah Halsted

Written by: Sarah Halsted & Peter Williams

Sarah Halsted

Technical Associate Director

Government’s duty-free shopping cutbacks have angered retailers

The government has announced significant changes to duty-free and tax-free goods passengers can carry, including new limits on duty-free sales of alcohol and tobacco at airports and ports after 1 January 2021. Tax-free sales of other goods, such as electronics and clothing, are also being withdrawn from that date.

The government will also abolish the VAT Retail Export Scheme (RES), which is currently used by participating retailers to fund VAT on high value goods when the customer exports them to a non-EU destination. At present, passengers can present their RES forms for approval by a customs officer at the port or airport when departing, then claim a post export VAT refund from the UK retailer. From 1 January 2021, foreign visitors (both EU and non-EU) buying goods for export from the UK will only be able to obtain VAT zero-rating by having the goods delivered from the UK retailer directly to an overseas address.

The abolition of tax-free sales and the RES has been announced despite opposition from many stakeholders who responded to a recent Treasury consultation. The news has come as an unpleasant surprise to retailers, who rely on tax-free shopping to generate strong sales in airside outlets and the RES to boost trade in tourist heavy areas such as London’s West End and other UK cities and retail centres.

Retailers had hoped the scheme would be extended to EU visitors next year to attract high spenders to the UK. Instead, its removal could lead to more job losses in the retail and travel industries, sectors which have already been hard hit by the COVID-19 lockdown. 

The government has also published new duty-free allowances for passengers bringing alcohol, tobacco and other goods into the UK from overseas. The new allowances will cover goods brought from both EU and non-EU countries.

The allowances for tobacco and other goods are essentially unchanged from the current duty-free allowances for goods entering the UK from outside the EU. However, the new 2021 allowances for alcohol have been set as follows:

  • 42 litres of beer;
  • 18 litres of still wine; or
  • 4 litres of spirits OR 9 litres of sparkling wine, fortified wine or any alcoholic beverage less than 22 per cent ABV.

While these are considerably higher than the current non-EU allowances, they fall well short of the effective allowance set out in the ‘indicative limits’ current applied by Border Force to alcohol arriving from the EU (currently 110 litres of beer, 90 litres of wine and 10 litres of spirits). Smokers returning from EU countries will also see reduced allowances, limiting them to importing 200 cigarettes or 250 grams of tobacco from the EU, significantly lower than the existing indicative limit of 800 cigarettes and 1kg of tobacco.

These drastic cuts to the amount of goods for personal use that can be moved across the UK/EU border without payment of further customs charges, will mean that ‘booze cruise’ day-trips across the channel to buy from hypermarkets near French ports are less of a money-saver for shoppers.

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