Fiscal Statement Announcements for VAT

Whilst there were calls for the government to use the VAT system to stimulate growth and address the cost-of-living crisis such as a temporary targeted VAT rate cut on domestic fuel, and raising the VAT registration threshold, there were no significant announcements outside alcohol duty and VAT free shopping for non-UK visitors.

What was announced:

• Planned Alcohol duty rate rises have been cancelled with a freeze on all Alcohol duties for one year from 1 February 2023. 
• Reforms to modernise alcohol duties will also be taken forward and the government will publish a consultation on these plans. The government has today published the response to the consultation on the new alcohol duty system and draft legislation that will underpin the changes and launched a consultation on some further technical issues. The reforms will be implemented from 1 August 2023.
• Introduction of a modern, digital, VAT-free shopping scheme with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors. The delivery will include modernising the scheme that currently operates in Northern Ireland and introducing a new digital scheme in Great Britain. The new VAT-free shopping scheme for non-UK visitors to Great Britain will enable them to obtain a VAT refund on goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage.

What does this mean for you?

Alcohol Duty

The freezing of Alcohol duties will be welcome news to the hospitality sector, as will reform to improve the alcohol duty system to make it simpler, more economically rational and less administratively burdensome on businesses and HMRC. The devil will however be in the detail.

New VAT-free shopping scheme for non-UK visitors to Great Britain

The introduction of a ‘new’ VAT-free shopping scheme for non-UK visitors to Great Britain is a slightly unexpected and unusual announcement. The current government actually withdrew the previous scheme (VAT Retail Export Scheme) in Great Britain on 31 December 2020, as part of Brexit changes, although it was at the time begrudgingly required to retain the scheme in Northern Ireland due to the requirements of the Northern Ireland protocol.

This announcement is effectively a policy U-turn.

The government’s costings for the new measure in their Growth Plan document are £1.265BN (24-25), 1.955BN (25-26) and £2,060BN (26-27) respectively. The figures are the government’s own projections, which haven’t been independently verified by the OBR. In December 2020, the government published a Tax information and impact notes (TIIN) including the impact of removal of the VAT RES from 1 January 2021. This estimated the impact of the removal of the VAT RES at £440m (25-25) and £460m (25-26) some ¾ times lower than the government’s current figures.

The inference from the vastly different figures, if correct, is either:

• A huge increase in spending by overseas visitors eligible to use the scheme; and or
• Expansion of what is covered under the new scheme; and or
• significant increase in uptake.

Alternatively, the new government figures may not be accurate and overestimate the ‘tax cut’! If these are wrong, what else is wrong!