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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extended to passengers travelling to the EU and will be withdrawn for all passengers.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 has also continued to meet and discuss with key 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>.</p><p>
</p><p>In 2019 HMRC estimate that VAT RES refunds cost around £0.5billion in VAT for
around 1.2million 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 £0.9billion. 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 £1.4billion 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
Edinburgh and Glasgow and 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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