The UK government is set to end tax-free sales at airports, ports and Eurostar stations from 1 January 2021.
This means that overseas visitors will no longer be able to benefit from tax-free sales and VAT relief on goods purchased in airports in the UK.
In what has been described as a fresh “hammer blow” to the ailing aviation industry, Ministers announced that duty-free bargains at airports will end on goods including perfume, clothing and electronics from January 1.
The tax savings will now only apply to sales of alcohol and tobacco.
In addition, the VAT retail export scheme, which currently enables EU visitors to claim refunds on goods purchased in the UK, will also be withdrawn from the same date, January 1, 2020.
The government justified the decision by citing “concerns over how the benefit is passed on to passengers and in some instances, the relief is not consistent with international tax principles.”
The Treasury announced: “As part of these changes, VAT refunds for overseas visitors in British shops will be removed. Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses, while the costly system of claiming VAT refunds on items they take home in their luggage will be ended.”
It described the scheme as “a costly relief, which does not benefit the whole of Britain equally”, adding that the current use is mostly centred in London.
The UK government said the rules were part of a harmonisation process concerning EU and non-EU travellers and that the rules had “to be aligned following the transition period so EU and non-EU passengers are treated equally”.
The decision, which affects all outbound passengers, has been called a “hammer blow” to struggling airports as much of their income (about 40 percent) comes from airside retailers.
Industry experts say it could lead to thousands of job losses as shops pull out of airports. They fear some regional airports could even go broke.
The Airport Operators Association (AOA) criticised the move, saying it “needlessly harms an industry in peril”.
AOA chief executive Karen Dee condemned the government saying: “The Government have once again shown a complete lack of awareness for the jobs and businesses on the line in the aviation sector.
“Our industry is weathering the worst crisis in the history of civil aviation, it can scarcely afford another hammer blow like this.”
Retailers will still be able to offer VAT-free shopping to overseas customers who purchase items and have them delivered overseas, including EU visitors.
Duty-free sales will also be extended to travellers to and from the EU, while personal duty-free allowances will “significantly increase”.
Visitors arriving from EU and non-EU countries will be allowed 42 litres of beer, 18 litres of still wine and 9 litres of sparkling wine duty free from next year. Allowances for tobacco and other goods will remain the same.
Travellers arriving in the UK from the EU will no longer be able to bring back unlimited amounts of alcohol, tobacco and other goods without declaring them and paying tax, however.
Karen Dee said: “By removing the airside concession, the government is needlessly harming the revenue of retailers and airports. Passengers will be dis-incentivised from making purchases as they travel.”
She warned: “Many foreign visitors will now choose to go elsewhere, attracted by the tax and excise regimes of our European competitors. This will harm not only UK airports, but the high street stores that hugely benefit from tourists.
“I strongly urge the government to reconsider.”
Francois Bourienne, chair of the UK Travel Retail Forum, added: “This decision puts the UK out of step with travel retail systems around the world, completely dis-incentiveses tourists to visit the UK and British passengers making purchases as they go on vacation abroad, and puts UK airports and travel retail at a substantial disadvantage against their European counterparts after Brexit.
“This will lead to significant additional job losses in the travel industry. It may well be the best gift the UK could have given the EU as well as a massive blow for UK plc.
“We urge the Government to immediately review its decision and act swiftly to ensure jobs, businesses and Britain’s place as a premier travel hub are not lost.”