Retailers led by New West End Company urge chancellor to reassess tax-free shopping reforms

Following our letter to the Treasury, expressing concern about the  lack of progress in implementing a vital new digital system for tax-free shopping and recommending the adoption of a faster more integrated system, Deirdre Hipwell, Retail Editor at The Times exclusively covered the story.

Read the full article below.

Retailers urge chancellor to scrap tax-free shopping reforms after more delays
By Deirdre Hipwell, Retail Editor

Britain’s top retailers, including Harrods and Fortnum & Mason, have written to the chancellor asking him to scrap the government’s proposal to digitise tax-free shopping.

The letter, signed by some 600 retailers in the West End of London and every retail lobby group, states that the industry has “lost confidence” in the Treasury’s reform of tax-free shopping, which “risks a further loss of international competitiveness post-Brexit”.

Britain’s tax-free shopping scheme creates £2.5 billion of retail sales each year. The system allows visitors from certain countries to claim back VAT paid on selected items when they leave.

According to research by the Centre for Economics and Business Research (CEBR), there is a net benefit to the Treasury of up to £1.90 for every £1 refunded coming from revenues raised as a result of greater visitor numbers and spending on other, non-tax refundable, goods and services.

Because the present system is paper-based, passengers have to retain their shopping receipts and queue for their refunds at the airport. Jace Tyrrell, chief executive at the New West End company, which represents businesses in the West End, said that passengers could be forced to queue at Heathrow for as long as two hours.

He added: “People then have to make the choice between claiming back money or catching their plane. The system is at breaking point and it leaves a very bad last impression of Britain for visitors . . . If the tax-free shopping scheme is extended to EU member states when Britain leaves the EU, retailers believe the system will simply be unable to cope with demand.”

The government first proposed digitising tax refunds in 2013 but five years later has yet to finalise the IT model and has again postponed the launch date from 2019 to 2020. In the letter, the retailers state: “Based on past performance, we have no confidence that HMRC will meet this revised date. We have lost confidence in HMRC’s ability to deliver its preferred option, which will create an inferior product, introduce additional uncertainty, and see the UK diverging from the global norms for tax-free shopping schemes.”

The retail industry has called on Mr Hammond to scrap the plan and instead build on the existing digital system. Retailers and VAT refunding organisations already record the necessary details from tourists at the point of sale in shops. The industry says this existing infrastructure could be linked to HMRC to allow for automatic validation of refunds. This is the model in operation in countries such as Australia, Spain, France and Germany.

Sir Geoffrey Clifton-Brown, vice-chairman of the public accounts committee, said: “The government needs to listen to retailers, who know their customers best, and come up with a new system that can be delivered quickly.”

An HMRC spokesman said: “Our teams work closely with stakeholders and always listen to customer feedback.”

The delay in introducing a new digital tax-refund programme is not the only headache for retailers. Another potential issue is how international customer data is recorded (Deirdre Hipwell writes).

Under the government’s proposed new digital system, tourists would register once with HM Revenue and Customs online before they travel and receive a refund code that could be used when they buy something. At the moment, each retailer has to register customer details in stores at the point of sale.

Jace Tyrrell, chief executive of the New West End company, said the government’s plan could break the relationship between the customer and the retailer. He said retailers often took advantage of the process to offer additional services, such as Mandarin-speaking advisers for Chinese shoppers. This not only provided a chance to sell more to tourists but gave the shoppers a better experience. It also offered an insight into what tourists liked, which could shape stores’ marketing and buying decisions.

Mr Tyrrell said: “There is a huge amount of market data that forms part of the current system but all that information could be lost.”

Wed 24 October 2018