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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extended to EU residents and will be withdrawn for all passengers.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 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 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>HMRC estimate that VAT
RES refunds cost around £0.5 billion in VAT in 2019 for around 1.2 million non-EU
visitors. In 2019 the ONS estimate there were substantially more EU visitors (24.8
million) than non-EU passengers (16.0 million) to the UK. This implies an extension
to EU residents would significantly increase the cost by up to an estimated £0.9 billion.
This would result in a large amount of deadweight loss by subsidising spending from
EU visitors which already happens without a refund mechanism in place, potentially
taking the total cost up to around £1.4 billion per annum.</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>The final costings
will be subject to scrutiny by the independent Office for Budget Responsibility and
will be set out at the next forecast.</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>
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