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Luxury shopping chains push for fast-track VAT cut for tourists

Luxury Retail Shopping Bicester Village
Luxury Retail Shopping Bicester Village

A coalition of retailers, including at Bicester Village and Heathrow Airport, plan to persuade ministers to fast-track the VAT cut for tourists in time for the King's coronation next year.

Industry bosses will tell Chancellor Kwasi Kwarteng they can reintroduce VAT-free shopping for tourists in time for a royal rush next year after the Treasury suggested the tax cut would not be in place until 2024.

The Treasury expects it will take two years to bring in a new digitised version of VAT-free shopping after it was announced in Friday’s mini-Budget. But the retailers believe setting up a digital scheme can be done much quicker in time for a royal rush of tourism around King Charles III’s coronation, which is expected to be held by next summer.

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Paul Barnes, head of the Association of International Retail, said the decision is a “huge Brexit bonus” that will make the UK “one of the best places to go shopping in the world”.

Rishi Sunak, Mr Kwarteng's predecessor at the Treasury, scrapped VAT-free shopping in 2020 in a blow for British brands that cater to international tourists. The Treasury claimed that it was a “costly relief” that benefited London most despite criticism from retailers.

But the industry expects the reversal to help bring back money that was “diverted to Paris and Milan” by Mr Sunak’s decision.

“We're now back on a level playing field,” said Mr Barnes. “We are extending tax-free shopping to any visitors from the EU. In the past, it was only non-EU visitors that were eligible for it, because we were all members of the EU.

“That is a massive pull for the tourism industry… It's made us the most attractive place in Europe for Europeans to go shopping.”

The mini-Budget documents suggest that the changes will not be made for another two years. However, Mr Barnes said retail chiefs plan to make the case to the Chancellor that they can bring in a digital system at no cost to the Government within six months to help the industry benefit sooner.

The AIR represents a number of companies catering to international tourists, including Heathrow Airport, many stores in London’s West End and Bicester Village, which includes outlets of luxury stores such as Prada.

The Treasury expects the policy to cost £2bn by 2026-27, but the industry believes the indirect benefits from luring in tourists can mitigate the costs. Ministers expect the new scheme to boost the high street and create jobs in the tourism and retail sectors.

Mr Kwarteng’s mini-Budget was welcomed by the retail sector on Friday as it moved to help consumers struggling with the cost-of-living crisis.

Helen Dickinson, chief executive of the British Retail Consortium, said the return of VAT-free shopping “will boost sales and bring the UK back in line with other European nations”.

She added: “The Chancellor’s announcements should help to shore up consumer demand going into what will be a challenging winter for households and businesses alike.

“The Energy Bill Relief Scheme, set out earlier this week, and announcements on National Insurance and Corporation Tax will help retailers shield their customers from some of the effects of inflation.”

A Treasury spokesman said: “We are taking advantage of Brexit to deliver a modern tax-free shopping scheme, which will be extended to all non-UK visitors. This will be supported by building an effective modern digital VAT refund system.”