VAT and the mini-budget

Whilst the budget last week contained many big announcements, there wasn’t really much from a VAT perspective.

Below are the key points and our thoughts.

VAT-free shopping for non-UK visitors

Chancellor Kwasi Kwarteng announced plans to introduce a new digital, VAT-free shopping scheme for non-resident visitors. In an attempt to provide a boost to the high street and create jobs in the retail and tourism sectors, non-UK visitors to Great Britain will be able 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.

The delivery will include modernising the scheme that currently operates in Northern Ireland and introducing a new digital scheme in Great Britain.

A consultation will gather views on the approach and design of the scheme, to be delivered as soon as possible.

Planned alcohol duty increase for wine, beer and spirits to be scrapped

Kwarteng said “I have listened to industry concerns over changes in levies which were due to come in next February and at this difficult time, we are not going to let alcohol duty rates rise in line with RPI. So I can announce that the planned increases in the duty rates for beer, for cider, for wine, and for spirits will all be cancelled.”

The Treasury said the freeze, which is worth £600m, would “support businesses and help consumers with the cost of living”, and would also save 4p on a pint of cider and £1.35 on a bottle of spirits.

Our thoughts

So, we have some small snippets of good news for non-UK resident shoppers, retail and the hospitality industry and those of us who like a drink.

Gemma McCaldon-Gower, VAT director said, “unfortunately, the government don’t appear to have used all the tools at their disposal. Post Brexit they have had the ability to make significant indirect tax changes. These could have included lowering VAT rates, temporarily or permanently or removing the 5% VAT rate on energy bills, for example, which would have been far more attractive to both businesses and individuals.

“There have been blanket temporary reductions in VAT rates in other parts of the EU, so these are measures that are being taken elsewhere.

“Also, we’ve seen that these measures do work – the reduced rate for hospitality helped kick start the sector post Covid.

“Businesses benefit from reductions in VAT rates, as those selling to consumers do so on a VAT inclusive basis, so can decide whether to pass on changes in the VAT rate or not.  There’s also cash flow impact to consider – the delay in paying VAT to a supplier and recovering it from HMRC can be up to four months (or longer) so even businesses who are able to recover VAT in full do benefit from a VAT rate decrease. “

If you have any questions regarding the mini budget, please contact your relationship partner or email enquiries@cowgills.co.uk and one of the team will be in touch.