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Exports: VAT

Question for Treasury

UIN HL8821, tabled on 6 October 2020

To ask Her Majesty's Government what forecast they have made of the potential fall in VAT revenue following the end of the VAT Retail Export Scheme on 31 December.

Answered on

19 October 2020

The Government published a consultation on the potential approach to duty-free and tax-free goods following the transition period 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.

The detailed rationale for these changes and a list of respondents to the consultation can be found in the summary of responses to the consultation.

HMRC estimate that VAT Retail Export Scheme refunds cost about £0.5 billion in VAT in 2019 for about 1.2 million non-EU visitors. HMRC also estimate that fewer than one in ten non-EU visitors use the VAT Retail Export Scheme.

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 about £1.4 billion per annum.

The final costings will be subject to scrutiny by the independent Office for Budget Responsibility and will be set out at the next forecast.

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