VAT: Changes to duty-free and tax-free goods carried by individuals

By   15 September 2020

Duty Free extended to the EU from January 2021

HMRC has announced changes to the treatment of excise duty and VAT of goods purchased by passengers for their own use and carried across borders luggage.

Passengers will be able to buy duty-free alcohol and tobacco products in British ports, airports, and international train stations, and aboard ships, trains and planes when travelling to EU countries.

Currently, the UK applies EU rules to these goods and there are differences between passengers traveling to and from EU member States and to and from countries outside the EU. From 1 January 2021 post Brexit the rules will change. These apply to GB rather than Northern Ireland and are:

  • the amount that passengers can bring back with them from non-EU Countries will also be increased, and extended to EU countries
  • tax-free sales in airports of goods such as electronics and clothing for passengers will end
  • VAT refunds for overseas visitors in British shops (the Retail Export Scheme – RES) will be removed. Currently, non-EU individuals can reclaim VAT incurred on retail purchases via the RES
  • however, overseas visitors will be able to buy items VAT-free in store but only if they have them sent direct to their overseas address. After 1 January 2020 this will be extended to EU countries
  • personal allowances will be:
    • 18 litres of still wine
    • 4 litres of spirits or 9 litres of sparkling wine, fortified wine or any alcoholic beverage less than 22% ABV
    • 200 cigarettes or
    • 100 cigarillos or
    • 50 cigars or
    • 250g tobacco or
    • 200 sticks of tobacco for heating
    • or any proportional combination of the above smoking products
  • UK excise duty will no longer be due on alcohol and tobacco bought when leaving GB. For example, alcohol purchased duty-free on the way to the EU

Commentary

Although sold by the government as applying our new freedoms and extending duty free, in reality, the current system permits bringing in alcohol and tobacco which was purchased for a cheaper price in other EU Member States (the duty being greatly lower than the UK and the goods themselves often cheaper) in almost unlimited quantities, so it is unlikely to be very beneficial for passengers.

Retailers will need to recognise the changes, particularly the removal of the RES and the end of tax-free sales of certain goods at airports.