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<p>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:</p><p>- 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.</p><p>- Personal allowances will apply to passengers entering Great
Britain from a destination outside of the UK, with alcohol allowances significantly
increased.</p><p>- The VAT Retail Export Scheme (RES) in Great Britain will not be
extended to EU residents and will be withdrawn for all passengers.</p><p>- The concessionary
treatment on tax-free sales for non-excise goods will be removed across the UK.</p><p>
</p><p>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 stakeholders
to hear their views and received 73 responses to the consultation. The Government
is also continuing to meet and discuss the changes with stakeholders following the
announcement of these policies.</p><p> </p><p>The detailed rationale for these changes
are included in the written ministerial statement and summary of responses to the
recent consultation: <a href="https://questions-statements.parliament.uk/written-statements/detail/2020-09-11/hcws448"
target="_blank">https://questions-statements.parliament.uk/written-statements/detail/2020-09-11/hcws448</a>
and <a href="https://www.gov.uk/government/consultations/a-consultation-on-duty-free-and-tax-free-goods-carried-by-passengers"
target="_blank">https://www.gov.uk/government/consultations/a-consultation-on-duty-free-and-tax-free-goods-carried-by-passengers</a>.
A technical note has also been issued to stakeholders to expand on this document and
to respond to issues raised by stakeholders.</p><p> </p><p>The concessionary treatment
on tax-free 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.</p><p> </p><p>HMRC estimate
that around £150 million of VAT is not charged as a result of tax-free airside sales.
As with the VAT RES, extending the relief to the EU would significantly increase the
cost of the scheme and result in a large amount of deadweight loss by subsidising
spending from EU-bound passengers which already happens.</p><p> </p><p>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 airside sales. The OBR estimate
that the withdrawal 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.</p><p> </p><p>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.</p><p>
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