What is changing?
Currently, under the VAT Retail Export Scheme, international visitors to the UK can obtain a refund of UK VAT on certain goods that they buy in the UK.
Figures quoted in a recent BBC article said that international tourists spent £6 billion on shopping in the UK in 2018 and of those transactions, £3.5 billion were registered as tax free sales, although VAT was only reclaimed on £2.5 billion.
From Friday 1 January 2021, international visitors will only be able to buy UK VAT free goods from retailers in situations where the retailer transports the goods from the UK as an export.
This could apply for example in situations where the consumer chooses the product in store, pays for it and as part of the same transaction asks the retailer to ship it directly to an address outside of the UK. The sale would then qualify as a zero-rated export of goods from the UK.
VAT free sales will not be available if the consumer wants to purchase a product and take it away from the store with them, even if on the same day they take an international flight out of the UK. In this situation, the retailer should charge VAT at the appropriate rate as they would when selling to any other customer.
VAT free shopping for international customers is widely available around the world so retailers will need to educate their staff to handle customer enquiries about the implications of this change.
Retailers that will offer VAT free international sales via exporting the product will need robust processes and controls to ensure that they meet all of the documentary requirements to support the sale being zero-rated. This is already a well-known risk area in UK VAT law. It is subject to regular scrutiny by HMRC and, in our experience, frequently leads to disputes where the exporter has retained some, but not all, of the relevant documentation needed to evidence, for each specific sale, that the goods have been exported from the UK. Where the appropriate evidence is subsequently found to be unavailable the business will be liable for the UK VAT payable and this will have to be paid at its expense given it will be unlikely to pass on the VAT charge to the international visitor.
Crowe can help businesses in ensuring that their export arrangements comply with the UK zero-rating rules. This could take the form of upfront advice on the design of processes and controls and training to staff. It could also take the form of reviewing the documentation for each sale to ensure that it is compliant.
To discuss how Crowe can help please contact Rob Marchant, Rob Janering or your normal Crowe contact.