Less than a month after retailers welcomed news of the return of duty-free shopping and income tax cuts as ways to boost demand, there is now disappointment that many of those steps have now been reversed.
the Mini budget September 22 of Prime Minister Liz Truss and Foreign Minister Kwasi Kwarteng announced the removal of the 45% tax bracket and the reduction of the basic rate of income tax from 20 pence to 19 pence, as well as the reintroduction of duty-free purchases for tourists. Measures to cap the average power bill at £2,500 for two years, a reversal of the previously planned introduction of a National Insurance tax were also welcomed as a way of stimulating demand, as were plans to bring the reduction forward. of corporation tax at 19 pence. . But of all those measures, only the reversal of the National Insurance tax has survived. yesterday’s statement from new chancellor jeremy huntdesigned to calm the financial markets.
Retail concerns
ParcelHero Consumer research chief David Jinks says restoring market stability was vital at a time of rising interest rates and government borrowing. But he adds: “Chancellor Hunt’s emergency declaration has a dark side for business; it is very much a two-edged sword. Companies are already recovering from the corporate tax chaos. The intermittent increase in this corporate tax, from 19% to 25%, has caused a great deal of confusion.”
He adds: “In terms of energy price caps, it looks like there will be much less support for businesses than expected beyond April. Chancellor Hunt said any continued support for businesses will only be directed at those most affected, and any further measures will focus on increasing energy efficiency. That’s bad news for traditional energy-intensive manufacturers and their transportation partners.
“Retailers and manufacturers will also be very concerned about the strong possibility that consumers will become even more angry after Chancellor Hunt removes energy price guarantees for homeowners beyond April. Any additional energy caps will be subject to Treasury-led review. That’s not going to do much to restore consumer confidence in the medium term. Removing the planned cut in the base income tax rate from 20% to 19% will also deter shoppers from reaching into their pockets.”
duty free shopping
Paul Barnes, CEO of the International Retailers Associationsays the decision not to reintroduce duty-free shopping is a blow. “The decision to reverse plans to reintroduce VAT-free shopping for international visitors will be a huge blow to UK tourism and the British high street.
“This short-sighted move is based on inaccurate and incomplete projections, and risks slowing the return of international visitors who are vital drivers of economic growth across the UK.
“We urge the Chancellor to pause, reflect and engage in a full cost-benefit assessment before deciding on the future of duty-free shopping, which we know is a key motivator for international tourists when choosing where to visit. . Ministers must base their decision on the full picture, including the significant economic benefit that international visitors bring to the UK, which this decision puts at risk.”
But Alison Horner, indirect tax partner at the accounting network MHA, says that while the scheme was a good idea, its demise is only a minor blow to retail. “It is disappointing to see the retail export scheme added to the bonfire of mini-budget measures,” says Horner. “It was a small change, but it would have been great for retailers. The UK operated a similar scheme while it was a member of the EU (the Non-EU Visitor Retail Export Scheme), so the scheme did not break new ground.
“However, had it gone ahead, the impact of VAT-free shopping would have been a welcome boost for retailers, but not a huge one in the grand scheme of things. Given the crisis, it is understandable that the new chancellor decided to go ahead with the rollback of National Insurance and scrap everything else.”
Alex Baulf, Senior Director of Global Indirect Tax at Tax Specialist endorse, says the announcement is disappointing news for retailers’ ability to compete with the world’s commercial capitals when they hoped VAT-free shopping would encourage foreign visitors and boost sales. “At a time when consumers and businesses are feeling the impact of the cost of living crisis and recession fears, retailers will now need to arrange for physical shipment of items outside of the UK and keep proof of purchase with us. VAT to be able to sell to customers abroad VAT free, further increasing their administrative burden.”
