UK to Restore Tax‑Free Shopping for Tourists

UK Treasury Secretary Kemi Badenoch announced plans to bring back tax‑free shopping for tourists, reversing a 2021 policy that ended the VAT refund scheme for overseas visitors. The move is supported by major retailers and aims to make the UK more competitive in global tourism, while the government…

By Felo News Desk · Published Mon, 21 Sep 2026 06:34:45 GMT

The UK government has announced a decision to reinstate the VAT refund scheme for international tourists, a policy that was scrapped in 2021 following the country’s exit from the European Union. The move, led by Treasury Secretary Kemi Badenoch, is part of a broader effort to make Britain more competitive in the global tourism market and to support the retail and hospitality sectors that have felt the impact of the post‑Brexit tax changes.

What Happened?

On Monday, Kemi Badenoch, who served as a Treasury minister when the VAT refund scheme was abolished, pledged that the government would restore tax‑free shopping for overseas visitors. The announcement came after a series of statements from business leaders and a joint statement from the Conservative Party, which highlighted the economic benefits of the policy. Badenoch said that the UK should be "the place where the whole world comes to shop" and that the current tax structure was driving customers away to other European destinations.

Background: The 2021 VAT Refund Abolition

In 2021, the UK government removed the VAT refund scheme that allowed non‑UK residents to claim back the value‑added tax on goods purchased in the country. The decision was part of a post‑Brexit overhaul of tax rules and was defended by the government as a simplification of the system. However, critics argued that the removal made the UK less attractive to shoppers from abroad, especially in comparison to cities such as Paris, Berlin, and Dublin, which still offer tax‑free shopping.

Visitor numbers to the UK have rebounded to near pre‑COVID levels, but real‑terms spending remains 8% lower than before the pandemic, according to VisitBritain data from 2024. The loss of VAT refunds was cited by several retailers as a factor contributing to the decline in tourist spending and the closure of stores across the country.

Business Support and Economic Rationale

Major retailers and hospitality groups welcomed the pledge. The heads of Fortnum & Mason, Paul Smith, and the parent company of Claridge’s hotel all issued statements calling the move "pro‑growth" and "pro‑jobs". A joint statement from a group of business leaders, including chef and TV personality Angela Hartnett, co‑founder of Inception hospitality group Charlie Gilkes, and chief executive of the fashion brand Me+Em Clare Hornby, praised the decision as a net benefit to Britain when considering the broader economic impact.

Business leaders argued that restoring the VAT refund would allow the UK to win back shoppers who had turned to other European cities for the savings offered by tax‑free shopping. They also noted that the loss of tax‑free shopping had led to store closures, affecting small manufacturers, suppliers, and jobs across the country.

Government Counter‑Measures and Future Plans

The Conservative Party said that the cost of re‑implementing the VAT refund scheme would be partly offset by a proposed "crackdown" on health tourism. This would involve more consistent charging of patients who are ineligible for free treatment. Additionally, the government plans to extend tax‑free shopping to EU tourists, subject to evidence, with a rollout expected to be completed by the end of the next Parliament.

In a statement, a Treasury spokesperson emphasized that the UK remains one of the world’s most‑visited countries and that international tourism continues to drive billions into the economy. The spokesperson also clarified that visitors can still claim VAT relief on items shipped directly to their home country as exports.

Political Reactions and Discrepancies

Labour Party officials called the decision a "spectacular U‑turn" and questioned why the policy was scrapped in the first place and how the government plans to finance its restoration. A Labour spokesperson noted that Kemi Badenoch had previously described tax‑free shopping as a costly giveaway, only to now present it as an economic miracle.

While the sources largely agree on the facts—Badenoch’s pledge, the business support, and the planned offset measures—there is a slight discrepancy regarding the exact timeline for the rollout to EU tourists. One source indicates a completion by the end of the next Parliament, while the other does not specify a timeframe, merely stating the extension will occur "by the end of the next Parliament." This difference is minor and does not affect the overall narrative.

What Happens Next?

The government will need to draft the necessary legislation to reinstate the VAT refund scheme and implement the proposed health tourism crackdown. The rollout of tax‑free shopping for EU visitors will be monitored closely, and the impact on tourism spending will be assessed in the coming months. The Treasury will also need to address questions from opposition parties regarding funding and the broader fiscal implications of the policy reversal.

As the UK aims to welcome 50 million international visitors a year by 2030, the restoration of tax‑free shopping is positioned as a key component of that strategy. The outcome will likely influence the competitiveness of the UK’s retail and hospitality sectors in the global market.

Key facts

UK will restore VAT refunds for overseas tourists
Major retailers support the move as pro‑growth
Government plans to offset costs via health tourism crackdown
Extension to EU tourists expected by end of next Parliament
Labour questions policy reversal and funding

Why it matters

Reinstating tax‑free shopping is a strategic move to revive UK tourism, support retail jobs, and regain competitiveness in a post‑Brexit market.

Frequently asked questions

Will the VAT refund be available to all tourists?

The refund will be available to non‑UK residents who purchase goods in the UK and take them abroad. The government also plans to extend the scheme to EU tourists subject to evidence.

How will the government fund the restoration?

The government intends to offset costs through a crackdown on health tourism and by adjusting the VAT refund rollout for EU visitors.

When will the policy be implemented?

The rollout is expected to be completed by the end of the next Parliament, though the exact timeline for EU tourists is not yet finalized.

What impact will this have on UK retailers?

Retailers anticipate increased footfall and higher sales from international shoppers, potentially reversing store closures caused by the previous policy.