Changes to tax-free shopping in the UK and VAT-free shopping explained

New post Brexit rules have been introduced in the UK from 1 January 2021. The VAT Retail Export Scheme, known as VAT RES, has been abolished in Great Britain (England, Scotland, Wales). Tax-free shopping will now consist of retailers offering VAT-free purchases to all overseas visitors, including EU nationals. The previous rules for non-EU residents visiting Northern Ireland will continue to apply.

How to get a VAT refund when leaving the UK

Navigating the latest tourist shopping rules in the UK has just become even more complicated. Travellers will not be able to get a tax-free form, officially known as VAT407 form, in stores any longer if they are visiting Great Britain.

This document typically looked like a long till receipt listing your purchases and stated the name of the refund operator company used by the retailer. The most commonly seen forms were issued by Global Blue and Planet. Tourists had to fill out their details, such as name, passport number, and address, as well as date and sign the VAT refund form.

Instead, from 1 January 2021, you would need to first find out if the retailer provides VAT-free shopping, which may involve shipping the goods directly to your overseas address. Previously only non-EU travellers could take advantage of this shopping perk. The new procedure will allow all overseas tourists to benefit, however, make sure to consider all exports costs.

Tax-free shopping in Northern Ireland

As a result of the post Brexit arrangement, Northern Ireland will continue to operate on the basis of the existing EU rules when it comes to matters of trade and customs. Therefore, the same VAT refund procedure as before will still be in place.

Any non-EU resident visiting Northern Ireland can purchase goods for personal consumption and claim a tax refund when they fly home. The tax-free forms in this case will need to be validated at the time of exit from the EU or Northern Ireland.

Even though the UK is no longer part of the EU, note that the visitors from Great Britain (England, Scotland, Wales) in practice will not be able to benefit from the retail export scheme. This is because any VAT refund given in Northern Ireland, will need to be repaid in Great Britain.

Minimum purchase requirement for a VAT refund

As before, there is no official threshold or restriction on the minimum purchase amount required to qualify for VAT-free or tax-free shopping. However, each retailer may apply their own conditions to make the service administratively viable. Often this minimum spend requirement can be in the region of £30-50.

How much is the VAT refund in the UK

The actual tax rate is 20% of the net price, which equates to 16.67% of the price that you pay in store. However, do not expect to get the full tax refund as retailers may charge an admin fee or commission to provide the service.

Also note that VAT-free shopping may attract extra shipping and insurance costs to deliver the goods to your home address outside the UK. Additionally make sure to understand if you would be responsible for any exports and import costs before making purchases.

Depending on the purchase amount and your destination country taxes and duties, it might make more sense not to bother with VAT-free shopping. In this case just pay the full price in the store and carry your merchandise in baggage. Alternatively you might also be able to purchase the same items online when you return back home to save you the hustle of navigating the complex procedure.

What can I purchase tax-free

Tourist shopping benefits only apply to goods but not services. Therefore, you will not be able to avoid paying taxes on services during your stay in the UK. Some common examples of these are restaurant meals, hotel stays, entertainment or transport tickets, and car rentals.

Also check that the goods you are thinking of purchasing include VAT. The vast majority of goods sold in UK shops already have 20% VAT included in the listed price. However, children's clothes, books, and basic food items carry 0 tax when sold in shops. Learn more here about what goods are eligible for tax-free shopping and how to calculate the VAT refund correctly.

Also you cannot consume your tax-free purchases while still in the UK as they must make their way to your home country still unused and in their original packaging.

New rules for VAT refunds at UK airports

Previously, for example at Heathrow airport, you would’ve needed to go to the Travelex counter to have your goods inspected and tax-free form stamped. From 1 January 2020, if the shop has already arranged for the items to be shipped directly to your home address overseas, you don’t need to do anything at the airport.

This also means that there will be no option to receive your VAT refund immediately in cash at the airports once your form has been authorised by customs. This service was previously provided by Travelex at Heathrow and Manchester airports, and Moneycorp at Gatwick and Stansted airports. Similarly there will be no option to receive your VAT refund in cash in city centers in advance of going to the airport.

If you are planning on visiting several European countries with the UK being your final departure point, you will not be able to stamp your forms from any EU countries or Northern Ireland at GB airports. Therefore ensure that you understand what your final departure airport from the EU is in order to get customs authorisation correctly.

The customs authorisation procedure for VAT407 forms issued in Northern Ireland will remain unchanged, see more details here. Therefore, follow the same rules at Belfast airport as before, or if your trip continues via another EU country, get the documentation approved at your final EU customs checkpoint.