Minister mulls U-turn on VAT-free shopping

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 show restoring VAT-free shopping would boost the economy by £21bn over five years. It would inject £4.1bn per year into the economy and supports 78,000 jobs, experts claim.

Rishi Sunak, however, argues that VAT-free shopping costs the Government £2bn a year 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 Walpolehave 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.”

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