High Court rejects Heathrow appeal to changes in tax-free retail rules

Ian Worth, Director, VAT and Customs Duty services

Back in September 2020, the UK government announced that it would be withdrawing the VAT Retail Export Scheme (RES) and ‘airside’ tax-free shopping at the end of the Brexit transition period. This decision not only aligned with Brexit, but also addressed concerns over abuse of the scheme.

The RES allowed non-EU visitors to the UK to recover the VAT on purchases they made on the high street and took home in their luggage, while retailers in airports were able to zero-rate sales to passengers departing for non-EU destinations.

The government faced the choice - either extend the reliefs to all visitors to the UK, or end them altogether.

Despite significant pushback from UK airports and retail concerned about the impact on tourism and sales, the government opted for the latter and confirmed the decision in December 2020, with both measures ceasing as of 1 January 2021.

An appeal launched by a Heathrow-led coalition in an attempt to overturn the decision was dismissed by the High Court in May 2021, with the Court finding that due process had been followed and that the decision to abolish tax-free sales “was essentially a political one for the government to take”.

While ending both schemes has severely limited tax-free shopping for tourists, some mitigation is still possible. Goods can still be sold tax-free but only if the seller ships them directly to the customer’s overseas address (rather than in the customer’s suitcase!). The goods must be exported within specified time limits and valid proof of export and the sales transaction must be held.

Under the terms of the Northern Ireland Protocol, retailers in Northern Ireland (including those at airports) will continue to be able to take advantage of VAT RES for sales to non-EU passengers.

If you would like to discuss these changes further and how they might impact your business, please get in touch with Ian Worth or your usual Crowe contact.

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Ian Worth
Ian Worth
Director, VAT and Customs Duty services