How can a VAT-exempt individual avoid paying VAT on purchases that encompass VAT in the price?

Question

Some individuals, for example first time visitors to the UK are not liable to pay VAT. If they seek legal advice they may not be charged VAT, suggesting that they are not legally required to pay it, nor the vendors of goods or services to charge it. How can non-VAT-liable customers avoid paying, or reclaim, VAT, on other (e.g. retail?) purchases?

Answer 1

Some individuals, for example first time visitors to the UK are not liable to pay VAT.

There is no such exemption in the United Kingdom. Most exemptions or zero-ratings apply based on the type of goods or services or the kind of seller. Few zero-ratings apply based on the individual purchaser's personal circumstances (e.g. for energy saving materials).

Retail VAT refunds or duty-free shops for visitors or outgoing passengers (which are not currently available in the UK excl. Northern Ireland), when such measures are in place, allow certain eligible individuals, under certain circumstances, for certain purchases, to benefit from refund or exemption from VAT.

As a general rule, VAT is a consumption tax and any thing you consume (i.e. use) before leaving is usually not eligible. That is why most countries' schemes require the unused goods to be exported (subject to random or sometimes routine checks) to be eligible. They usually require the cooperation of the shops (and sometimes an intermediary) who almost always charge VAT beforehand (outside defined duty-free areas) until export. Participation in the scheme was not and will likely not be mandatory for businesses; the visitor remains liable to VAT but may have the ability to apply for a refund.

Goods for direct exportation or indirect exportation by businesses are zero-rated. Indirect export by individuals acting on their personal behalf is not.

---

There are jurisdictions where a personal exemption applies to VAT (or other taxes).

For example, in canada, registered Indians (within the meaning of the Indian Act, members of First Nations) are not liable to VAT (GST/HST) for goods purchased on or delivered to a reserve. If GST/HST was paid in error, a rebate may be applied. In ontario, the provincial portion of HST is relieved for purchases made off reserve as well. If the supplier does not apply such relief, a rebate may be later applied from the province.

Answer 2

With an exception for non-EU visitors to Northern Ireland, they can't since 1 January 2021 following the withdrawal of the relevant concessions and schemes.

The H.M. Revenue and Customs Brief 21...

..confirms the withdrawal of “airside” tax-free shopping in the UK and the withdrawal of the VAT Retail Export Scheme (VAT RES) from Great Britain (England, Scotland and Wales) when the Transition Period comes to an end on 31 December 2020.

• Tax free shopping (extra statutory concession 9.1):

The tax-free shopping extra statutory concession (ESC 9.1) is published in VAT Notice 48. It allows retailers of goods sold in ports and airports to zero-rate sales to passengers departing for non-EU destinations. ESC 9.1 allows the retailer to be regarded as exporters of those goods and consequently zero rate the supply for VAT purposes.

This concession will be withdrawn with effect from 1 January 2021 throughout the UK.

• VAT Retail Export Scheme (VAT RES):

VAT RES allows non-EU visitors to the EU to recover the VAT on purchases they make on the high street which they take home with them in their luggage. This scheme will be withdrawn in Great Britain. Retailers in Northern Ireland, including those at ports or airports, will continue to be able to offer VAT RES to non-EU visitors to Northern Ireland, under the terms of the Northern Ireland Protocol.

Answer 3

They need to find a store that is willing to put in the time and effort to allow them to not pay VAT. The store is not required to do that.

So if you go to a supermarket and refuse to pay the VAT on the bill you will be just laughed at. If you pay £1,000 for jewellery at an airport, they will know what to do.