UK About to Close VAT Refund Scheme. What Do You Need to Know?

If you are a foreign citizen and have visited the UK before the year 2021, you might have taken advantage of the VAT refund scheme. You could have done that by buying goods from a duty-free shop or filling in a form to receive a reimbursement for the goods you purchased outside the airport and brought to your home country. From 1 January 2021, the situation is set to change, with the scheme diverging from the regulation adopted by the European Union.

What is a VAT refund?

The VAT refund is a common tax concession practice in the EU and other countries of reimbursing the VAT the non-citizens have paid on goods in the country. The process of a VAT refund usually consists of proving that the customer matches the qualification criteria (country of residence, etc.), filling in a form, submitting it at the customs office and receiving the covering payment.

The UK VAT refund policy before 2021

Until January 2021, non-citizens or residents of the EU/the UK who intended to leave the EU for at least 12 months were subject to the VAT refund scheme. The existing VAT refund scheme has been a significant draw of foreign customers seeking to buy luxury and other goods VAT-free. Based on the regulation, such persons in some cases could shop tax-free and receive VAT refunds for their purchases done within the last three months. 

When a customer wanted to receive a VAT refund UK store-keepers were able to hand the buyer a VAT 407 form for filling in. The form was to be shown at the airport customs office together with the acquired goods, and the refund was approved. The payment to the buyer was carried at a refund booth or by the retailer.

Changes after January 2021

VAT refund UK regulative authorities have decided to ban most of the duty-free sales and cancel the reimbursement scheme for international visitors. This change, made at the conclusion of the Brexit transition period, highlights the UK government‘s efforts to collect more taxes from the tourism industry.

Key facts:

• 1 January 2021 in the UK marks significant changes for non-citizen travellers in the country as well as the British tourists travelling to the EU;
• The usual VAT refunds for overseas travellers at British shops will be stopped. Instead, foreign visitors will be able to buy VAT-free items in a physical store and asked them to ship to their home address (outside the UK);
• Tax-free sales on goods sold at airports, ports and international train stations, except liquor and tobacco, will be withdrawn for all outbound passengers. Electronics, clothing and other physical goods will be taxed similarly as those sold in the shops outside the ports and stations. Passengers will still be able to buy alcohol and tobacco duty-free both at the stations and aboard planes, ships, etc.;
• Until 31 March 2021, travellers and foreign businesses will still be able to claim a refund for the purchases made before 1 January 2021 ;
• Concluding the transition period for the UK departure from the EU, travellers to the EU member countries will be treated as travelling from a third country. Passengers departing England, Scotland and Wales to the EU will be able to buy duty-free goods from 1 January 2021;
• Following the changes, travellers from the UK will be able to bring back an increased amount of personal-use goods;
• Experts claim that the upcoming changes will negatively impact the UK tourism industry with losses at around £5.6bn.