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BRIEFING PAPER
Number 1223, 19 November 2020
Passenger purchases of By Antony Seely
alcohol and tobacco
Contents:
1. Personal imports of duty-paid
goods
2. Past reforms to UK regime
3. Brexit and the UK regime
from January 2021
4. Appendix: Current rules on
duty- and tax-free goods
www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | papers@parliament.uk | @commonslibrary
2 Passenger purchases of alcohol and tobacco
Contents
Summary 3
1. Personal imports of duty-paid goods 4
1.1 Summary 4
1.2 Background on EU law 5
2. Past reforms to UK regime 7
2.1 The burden of proof for personal imports (2000-2002) 7
2.2 Transitional arrangements for new Member States (2004-2009) 11
3. Brexit and the UK regime from January 2021 15
4. Appendix: Current rules on duty- and tax-free goods 30
Cover page image copyright Pound coins / image cropped. Licensed under CC0 Creative Commons – no
copyright required3 Commons Library Briefing, 19 November 2020
Summary
Since 1 January 1993 – the inception of the Single European Market – travellers within the
EU have been allowed to import alcohol and tobacco products which they have purchased
for their own use, without paying any additional duty on their return. 1 Before that date,
shoppers could only import limited quantities of tax-paid goods. Duty-free sales on
journeys within the EU were abolished from 1 July 1999, though they remain for journeys
to countries outside the EU. When travellers buy goods in the EU, they pay all the duty
and VAT in the Member State where they buy them.
Each Member State may set indicative levels of alcohol and tobacco purchases, to help
customs officers distinguish between genuinely private imports and commercial
importation. In the UK’s case, these minimum indicative levels (MILs) are as follows:
Alcohol Tobacco
110 litres beer 800 cigarettes
90 litres wine 400 cigarillos
10 litres spirits 200 cigars
20 litres fortified wine (eg, sherry, port) 1kg smoking tobacco
At the time of the 2020 Budget the Government launched a consultation on the
“potential approach to duty- and tax-free goods policy after the transition period
following the UK’s departure from the EU.” 2 Following this, on 11 September the
Government announced a series of reforms to these rules. After the UK leaves the Single
Market, passengers leaving the UK will be entitled to buy alcohol and tobacco products
duty-free, irrespective of their destination. All passengers entering the UK will be entitled
to bring in defined amounts of alcohol, tobacco and other goods, without having to pay
UK VAT or duty on these imports. These personal allowances will be as follows:
Alcohol
• 42 litres of beer
• 18 litres of still wine
• 4 litres of spirits OR 9 litres of sparkling wine, fortified wine or any alcoholic
beverage less than 22% ABV
Tobacco
• 200 cigarettes OR
• 100 cigarillos OR
• 50 cigars OR
• 250g tobacco OR
• 200 sticks of tobacco for heating
• or any proportional combination of the above.
Any other goods
• £390 or £270 if travelling by private plane or boat. 3
1
HMRC publish general advice for travellers: Travelling to the UK: what you can bring in, what you can’t bring
in, what you must declare, December 2017.
2
Budget 2020, HC 121, March 2020 para 2.236, The deadline for responses was 20 May.
3
Written Statement: Excise Duty & VAT - HCWS448, 11 September 2020; HM Treasury press notice, Duty
Free extended to the EU from January 2021, 11 September 20204 Passenger purchases of alcohol and tobacco
1. Personal imports of duty-paid
goods
1.1 Summary
Since 1 January 1993 – the inception of the Single European Market –
travellers within the EU have been allowed to import alcohol and
tobacco products which they have purchased for their own use,
without paying any additional duty on their return.
Before that date, shoppers could only import limited quantities of tax-
paid goods. Duty-free sales on journeys within the, EU were abolished
from 1 July 1999, though they remain for journeys to countries outside
the EU. When travellers buy goods in the EU, they pay all the duty and
VAT in the Member State where they buy them.
Each Member State may set indicative levels of alcohol and tobacco
purchases, to help Customs officers distinguish between genuinely
private imports and commercial importation.
In the UK’s case, these indicative levels were introduced on 1 January
1993. The current indicative levels are as follows:
Alcohol Tobacco
110 litres beer 800 cigarettes
90 litres wine 400 cigarillos
10 litres spirits 200 cigars
20 litres fortified wine (eg, sherry, port) 1kg smoking tobacco
These indicative levels have been changed once since they were
introduced.
In October 2002 the limits for cigarettes and smoking tobacco were
increased from 800 cigarettes and 1kg of smoking tobacco to 3,200
cigarettes and 3kg of smoking tobacco. 4 The old limits for both these
categories were reintroduced from 1 October 2011. 5
General advice for travellers on the current rules is published by HM
Revenue & Customs. 6
A more detailed description of the current rules on duty- and tax-free
goods is provided in the appendix to this paper. 7
In assessing whether goods are for one’s own use or not, the important
distinction is between commercial purchases and non-commercial ones.
4
HL Deb 29 October 2002 cc18-21WA
5
HMRC, Reducing the Minimum Indicative Levels for Tobacco Products: tax information
& impact note, 25 July 2011. This change was made by secondary legislation (SI
2011/2225).
6
HMRC, Travelling to the UK: what you can bring in, what you can’t bring in, what you
must declare, December 2017. See also, Gov.uk, Bringing goods into the UK, retrieved
September 2020.
7
See also, HMT/HMRC, A consultation on the potential approach to duty- and
tax-free goods arising from the UK’s new relationship with the EU, March 2020
(Annex A)5 Commons Library Briefing, 19 November 2020
Should it be found that a traveller has purchased goods for a
commercial purpose, and not their own use, HMRC or Border Force
officers are empowered to seize the goods in question, and that
person’s vehicle.
Travellers can appeal against the legality of any seizure – a decision
heard by a magistrates’ court – as well as making a request for HMRC
or Border Force to return the goods (known as a ‘restoration’). In the
latter case, if the request is refused travellers must first ask for a review
by an officer not previously involved in the matter, and then, if they
disagree with this decision, may make an appeal to tribunal. 8
1.2 Background on EU law
Common arrangements for charging excise duty across the EU with the
advent of the Single Market were first set out by directive 92/12/EEC,
agreed in February 1992. Article 8 of the directive stated that, “as
regards products acquired by private individuals for their own use and
transported by them, the principle governing the internal market lays
down that excise duty shall be charged in the Member State in which
they are acquired.” This established the rule that provided goods EU
travellers have are for their personal use or consumption, they need not
pay any further excise duty on such goods when they return home from
another Member State.
As a result, since 1 January 1993 travellers within the EU have been
allowed to import alcohol and tobacco products which they have
purchased for their own use, without paying any additional duty on
their return. Before that date, shoppers could only import limited
quantities of tax-paid goods. Now, when travellers buy any goods in
the EU, they pay all the duty and VAT in the Member State where they
buy them.
The directive also allowed for each Member State to set indicative levels
of alcohol and tobacco purchases, to help Customs officers distinguish
between genuinely private imports and commercial importation. Article
9 specified the minimum guide levels which any country could use. In
turn these provisions are now established by Directive 2008/118/EC of
16 December 2008; Article 32(1) states that “excise duty on excise
goods acquired by a private individual for his own use, and transported
from one Member State to another by him, shall be charged only in the
Member State in which the excise goods are acquired.” Article 32(3)
sets the minimum indicative limits that may be used “solely as a form of
evidence.” 9
The levels are indicative only. Below them, imported goods will be
chargeable with duty by the home state only if they are sold or have
been purchased for someone else. The Excise Duties (Personal Reliefs)
Order SI 1992/3155 (PRO) introduced these indicative limits, or guide
8
HMRC, What you can do if things are seized by Customs : Notice 12A, August 2020.
Gov.uk, Complain about HMRC & Border Force complaints procedure, ret’d 9/2020.
9
The European Commission has a clear summary of the rules for travellers on its site.6 Passenger purchases of alcohol and tobacco
levels, for the UK – as well as the criteria for determining whether goods
are for someone’s personal use or not. 10 The regulations specified a
number of factors to be taken into account by Customs officers (under
paragraph 5(2) of the Order):
(a) [the traveller’s] reasons for having possession or control of
those goods;
(b) whether or not he is a revenue trader;
(c) his conduct in relation to those goods and, for the purposes of
this sub-paragraph, conduct includes his intentions at any time in
relation to those goods;
(d) the location of those goods;
(e) the mode of transport used to convey those goods;
(f) any document or other information whatsoever relating to
those goods;
(g) the nature of those goods including the nature and condition
of any package or container;
(h) the quantity of those goods;
(i) whether he has personally financed the purchase of those
goods; and
(j) any other circumstance which appears to be relevant.
The PRO was amended in 1999 to take account of the abolition of duty
free sales within the EU, and to make explicit the then-implicit right of
courts and tribunals to decide whether goods that were purchased in
another Member State had been brought into the UK for commercial
purposes and are thus not entitled to relief from UK excise duty. 11
These provisions are now contained in reg 13 of the Excise Goods
(Holding, Moving & Duty Point) Regulations SI 2010/593, as amended.
The wording used in reg 13 is very similar, with regard to these factors,
with one minor exception: on the question of the traveller’s conduct –
item (c) in the list above – reg 13(4)(c) refers to the traveller’s “conduct,
including [their] intended use of those goods or any refusal to disclose
the intended use of those goods” (emphasis added).
In a case decided in November 2006 the European Court of Justice
confirmed the principle that only products acquired and transported
personally by private individuals are exempt from duty in the country
into which they are imported. 12 In the past the UK Government had
strongly supported this approach and the value of the indicative limits as
an important tool to prevent duty evasion. At the time Treasury officials
were quoted as describing the ECJ’s ruling as “the right and common-
sense judgement that upholds the existing laws on cross-border
shopping and national rates of taxation.” 13
10
The UK guide levels were set equal to the minimum indicative limits set out in Article
9 of directive 92/12/EEC.
11
SI 1999/1617. The Order was debated by the Select Committee on Delegated
Legislation on 29 June 1999.
12
Staatssecretaris van Finacien v Joustra, Case C-5/05, 23 November 2006
13
“Blow to buying cheap drink online”, Financial Times, 24 November 20067 Commons Library Briefing, 19 November 2020
2. Past reforms to UK regime
2.1 The burden of proof for personal imports
(2000-2002)
As noted above, if a traveller is found to have purchased goods for a
commercial purpose, and not their own use, those goods and the
traveller’s vehicle may be seized. In March 2000 the Labour Government
announced a new strategy to tackle tobacco smuggling, and one of the
consequences was a strong rise in the level of seizures of both goods
and vehicles. 14 The practice of customs officers stopping travellers and
seizing their goods where they exceeded the guide levels proved
controversial and legally contentious. 15
In May 2002 the official approach to seizing vehicles was modified, in
light of a judgement by the Court of Appeal concerning the
proportionality of a decision to take someone’s vehicle as forfeit. 16 In
this case the respondent had bought cigarettes and tobacco for
members of his family with money provided by them. Although the
goods were to be redistributed on a ‘not-for-profit’ basis, both the
goods and the respondent’s vehicle were seized on the grounds that the
goods were held for a ‘commercial purpose’ and UK duty had not been
paid on them.
The Court of Appeal upheld a tribunal decision that this had been
disproportionate, ruling that in this case the customs officer had failed
to have regard to all material considerations in taking this course of
action, and that HM Customs & Excise should conduct a further review
of their decision. At this point responsibility for customs as well as
indirect taxes generally lay with HM Customs & Excise. In 2005 the
department was merged with the UK’s other revenue authority, the
Inland Revenue, to form HMRC.
Following this judgement the then Financial Secretary, Paul Boateng,
announced that the department would revise its policy on vehicle
seizure:
Barbara Follett: To ask the Chancellor of the Exchequer if HM
Customs and Excise will change its vehicle seizure policy in
relation to alcohol and tobacco smuggling as a result of the Court
of Appeal decision in the Lindsay case.
Mr. Boateng: The Court of Appeal confirmed in the Lindsay case
that Customs vehicle seizure and non-restoration policy in relation
to those who smuggle alcohol and tobacco for profit was justified
and proportionate. It also confirmed that vehicles used to smuggle
on a non-profit basis were similarly liable to seizure. However, the
Court considered that in not-for-profit cases a proportionate
response, depending on the individual circumstances, would be to
offer to restore such seized vehicles.
14
The background is discussed in, Cross border shopping and smuggling, Library
Research paper 02/40, 21 June 2002.
15
for example, HL Deb 8 February 2001 cc1266-1269; HL Deb 7 October 2002 cc4-6.
16
Lindsay v C&E Comrs [2002] EWCA Civ 2678 Passenger purchases of alcohol and tobacco
Accordingly when Customs detect commercial for profit
smugglers, any vehicles used in such smuggling will remain
subject to the existing tough seizure and non-restoration policy.
However, Customs have now further developed their vehicle
seizure policy, taking into account the clarification provided by the
Court of Appeal.
When Customs detect not-for-profit smugglers their goods and
vehicles will be seized but vehicle restoration will ordinarily be
offered in the first instance for a sum equivalent to the revenue
evaded. There will be a rising scale for any subsequent offences
up to non-restoration. Customs will reserve the right to vary their
restoration terms according to the aggravating or mitigating
circumstances of any individual case.
This policy will allow Customs to continue their successful
approach of hitting those who smuggle for profit with tough
sanctions that strike at their illicit trade and also provides a real
and proportionate penalty for those who break the law, albeit
without such profit making motivation. It represents a fair and
balanced policy. 17
The European Commission was strongly critical of this approach to ‘not-
for-profit smugglers’, and after an extended exchange of views with the
UK Government, announced in October 2004 that it had referred the
UK’s sanctions policy to the European Court of Justice, as a potential
infringement of the EU Treaty. 18
Following further discussions, and a change in HM Customs & Excise’s
sanctions policy, in June 2006 the Commission announced that it had
closed the case:
The Commission considered that two aspects of the UK's
sanctions policies – those relating to the purchase of excise goods
on behalf of a third party, and the importation of excise goods by
post (referred to below as "irregular movement") - remained
disproportionate where there were no aggravating
circumstances…
Under the [UK’s] new policies, in such irregular movement cases,
the UK will no longer systematically seize as liable to forfeiture the
goods and cars of persons holding excise goods for purposes
other than their own use. Instead, in first-time irregular
movements without aggravating circumstances, the holder will be
offered the option of holding on to his goods against payment of
the duty plus a penalty. Where a car is used to carry the goods in
such cases it will not be seized but the owner will normally be
warned that it could be seized in any further cases. 19
HMRC’s revised approach to vehicle seizure in these cases was set out in
a written answer in September 2007:
Keith Vaz: To ask the Chancellor of the Exchequer what
guidelines are given to Customs officers on the impounding of
vehicles.
17
HC Deb 2 May 2002 cc932-3W. Further details of the ‘sliding scale’ the department
would use were given in a press notice (HM Customs & Excise press notice PR34/02,
2 May 2002). In 2005 HM Customs & Excise was merged with the Inland Revenue to
form HM Revenue & Customs.
18
European Commission press notice IP/04/1255, 20 October 2004
19
European Commission press notice IP/06/860, 28 June 20069 Commons Library Briefing, 19 November 2020
Jane Kennedy: Customs officers are instructed that a vehicle may
be seized if it is or has been used to carry goods that are liable to
forfeiture or if it is constructed, adapted, altered or fitted for the
purpose of concealing goods and is or has been within the limits
of a port, aerodrome or while in Northern Ireland, within the
prescribed area.
Where a vehicle has been used to carry excise goods from another
member state that are not for own use, but instead are intended
to be sold to others on a reimbursement basis, then provided
there are no aggravating circumstances and it is the first offence,
Officers are instructed not to seize the vehicle but to warn the
driver and owner that it is liable to forfeiture.
If a vehicle has been used to carry prohibited items then,
providing the quantities involved are small and the vehicle was
incidental to the offence, officers are instructed the vehicle should
not normally be seized. Where any vehicle has been seized, it
maybe restored under the powers set out in section 152 of the
Customs and Excise Management Act, subject to such terms and
conditions as the Commissioners may think fit.
Anyone who has goods or a vehicle seized and wishes to claim
they were not liable to forfeiture may challenge the legality of the
seizure by writing to any HMRC office with details of their claim
within one month of the seizure. Anyone who requests
restoration and is unhappy with the decision they receive may ask
for that decision to be reviewed and, if still dissatisfied, may
appeal the decision to the VAT and Duties Tribunal. 20
When the rules covering personal imports were first introduced – the
‘Personal Reliefs Order’, or PRO for short - the onus of proof fell on the
traveller to show that goods were for their own use, if their purchases
exceed the guide levels. 21 In July 2002 the High Court made an
important judgement concerning Customs approach to stopping and
searching travellers – commonly known as the ‘Hoverspeed’ case. 22
The Court ruled that Customs officers had not had ‘reasonable grounds’
to stop a party of four travellers coming back to this country to assess
whether the excisable goods they had purchased in France were for
their own use, and that as a consequence Customs had not been
entitled to seize both the goods and the car in which this party were
travelling. In addition the Court ruled the PRO wrongly reversed the
burden of proof requiring individuals to prove that they were not
holding excise goods over the guide levels for a commercial purpose,
and, as such, contravened EU law: specifically directive 92/12/EEC
implementing common arrangements for charging excise duty. 23
On 29 October 2002 Treasury Minister John Healey announced the PRO
would be repealed, removing the burden of proof on the individual – to
bring UK law into line with the court ruling in the Hoverspeed case. 24
20
HC Deb 17 September 2007 cc2236-7W
21
Under paragraph 5(3) of SI 1992/3155
22
R (Hoverspeed) v C&E Comrs [2002] EWHC 1630 (Admin)
23
In December 2002 Customs successfully appealed against one further aspect of the
Court’s ruling; this is discussed below.
24
HM Customs & Excise press notice NR83/02, 29 October 2002; HC Deb 29 October
2002 cc686-688. The regulations to effect this change (SI 2002/2691 & SI 2002/2692)
were debated at some length (Third Standing Committee on Delegated Legislation,
21 November 2002).10 Passenger purchases of alcohol and tobacco
Under the new rules it would be for Customs officers to be satisfied that
goods were for a commercial purpose. To effectively define shopping
and smuggling, the regulations would specify that ‘own use’ includes
‘use as a personal gift’, and that goods would be regarded as being
‘held for a commercial purpose’ if the goods were ‘transferred to
another person for money or money’s worth (including any
reimbursement of expenses incurred in connection with obtaining
them), or the person holding them intended to make such a transfer.’ 25
The guide levels for tobacco were increased from 800 to 3,200 for
cigarettes (equivalent to 6 months supply for the average smoker) and
from 1 kg to 3 kg for hand-rolled tobacco. Initially the guide level for
wine – set at 90 litres – had specified that no more than 60 litres could
be sparkling wine. This restriction on sparkling wine was removed. 26
The regulations retained the list of factors set out in the PRO that
Customs officers could take into account when determining if goods are
for someone’s own use or not. In addition Customs officers were still
empowered to seize smaller quantities of goods than the guide levels if
other information satisfied them that in an individual case the goods are
for resale. These changes were not retrospective. 27
Although Customs accepted that the PRO was incompatible with
European law, it decided to appeal against another part of the Court’s
ruling in the Hoverspeed case. The Court had ruled that Customs
officers had to have “reasonable grounds for suspecting the individual
of holding goods bought in another member state for commercial
purposes before he could lawfully be stopped and searched.” In the
absence of “such suspicion on an individualised basis” Customs had no
right to stop and search travellers. There was speculation that the
judgement might result in other travellers successfully suing Customs for
goods that had been seized on their returning to the UK. 28 In its appeal
Customs argued that although travellers could not be checked in a
‘blanket’ or ‘automatic’ fashion, it was lawful – under both EU and UK
law – to select a traveller for checking because their particular
circumstances matched an established profile or trend. The Court of
Appeal upheld this argument on the proviso that Customs “must always
be careful not to succumb to sterile or unfounded stereotypes.” 29
The Court of Appeal also overturned a second aspect of the original
ruling. The Divisional Court had found that in this particular case
Customs officers had had invalid reasons to stop and check this party. It
went on to reason that since the check was invalid, the ensuing seizure
of goods was invalid too. In addition the seizure of goods constituted a
disproportionate interference with the freedom of movement or
property. This aspect of the Court’s ruling – had it stood – would have
25
This wording is retained in the current regulations – specifically, reg13(5)(b) of SI
2010/593.
26
HM Customs and Excise press notice NR84/02, 29 October 2002
27
The Minister underlined this in a Westminster Hall debate on this issue at the time: HC
Deb 30 October 20002 cc314-322WH.
28
for example, “Customs torpedoed”, Tax Journal, 12 August 2002 & “Searching for
proof”, Solicitors Journal, 13 September 2002
29
Commissioners of Customs and Excise v Hoverspeed Ltd & Ors [2002] EWCA Civ 1804.
See also, “Law report: Customs can use profiles”, Times, 16 December 200211 Commons Library Briefing, 19 November 2020
represented an opportunity for many other travellers to claim
compensation from Customs for goods seized – should Customs have
been unable to prove in their own case that officers had had reasonable
grounds to stop them. Indeed, a backlog of cases had built up, as both
defendants and Customs awaited the outcome of this appeal. In the
event the Court of Appeal found this line of reasoning specious.
The Government’s response to the judgement was set out in a press
notice:
A Court of Appeal ruling today gave cross-Channel shoppers
further clarity about their rights to shop across the EU with the
minimum of interference and reinforced and backed the
Government's approach to tackling smuggling …
The ruling was welcomed by Government and confirms:
• Customs checks are not random but are based on
reasonable grounds;
• Smuggled goods are liable to seizure whenever they are
found;
• Tobacco and alcohol brought in for sale, even if it is not for
profit and even if it is for payment in kind rather than cash,
is not 'own use' and the goods can be seized.
• Customs Minister John Healey said: "... The court has
confirmed that our Customs regime is lawful, fair and
reasonable. With the package of new measures I
introduced in October and the backing of this court
judgment, we can ensure minimum interference for honest
shoppers but continue our drive to stamp out cross-
Channel smuggling ..." 30
In October 2004 Hoverspeed Ltd served a claim against Customs in
respect of the impact on their business of the latter's activity to tackle
cross-channel smuggling of alcohol and tobacco. In January 2006 the
department announced that it had reached a settlement with the
company out of court. 31
2.2 Transitional arrangements for new
Member States (2004-2009)
On 1 April 2004 Treasury Minister John Healey announced that certain
restrictions would be maintained on duty-paid purchases of tobacco
from eight EU accession states. Under their accession agreements,
these states were allowed transitional periods in which to meet EU
minimum duty rates on certain tobacco products. (EU law sets
minimum duty rates for all excisable goods: that is, alcohol,
hydrocarbon oils and tobacco products. 32) However, until these rates
were reached, other Member states would be entitled to maintain the
30
HM Customs & Excise press notice NR102/02, 10 December 2002
31
HM Revenue & Customs press notice NAT 03/06, 19 January 2006
32
The Commission provides an overview of these rules on its site.12 Passenger purchases of alcohol and tobacco
restrictions currently applied to travellers arriving from outside the EU.
The Minister’s statement is reproduced below: 33
I am today laying regulations confirming the introduction of
quantitative restrictions on travellers bringing tobacco products
from those new EU member states taking advantage of a
derogation allowing them to delay meeting minimum duty levels
on certain tobacco products.
• The restrictions will apply from 1 May to the following:
• cigarettes bought duty-paid in the Czech Republic, Estonia,
Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia;
• manufactured tobacco products1 bought duty-paid in the
Czech Republic; and
• smoking tobacco2 bought duty-paid in Estonia.
Where new member states take advantage of the derogation,
existing member states are entitled to maintain the same
restrictions on the import of cigarettes and some other tobacco
products bought in those countries for a traveller's own use, as
are currently applied to travellers arriving from third countries,
including the new member states.
The Excise Duty Points (Etc.) (New Member States) Regulations
2004, the Customs and Excise Duties (Travellers' Allowances and
Personal Reliefs) Order 2004 and the Channel Tunnel (Alcoholic
Liquor and Tobacco Products) (Amendment) Order 2004 allow the
UK to maintain these restrictions. After Accession on May 1,
travellers to the UK bringing in tobacco products from the
countries covered by the regulations will be restricted, as they are
currently, to a limit of 200 cigarettes, or, in the case of Estonia, to
a limit of 200 cigarettes or 250 grams of smoking tobacco; or, in
the case of the Czech Republic, to a limit of 200 cigarettes or 50
cigars or 100 cigarillos or 250 grams of smoking tobacco.
While the EU minimum duty rates are not met, uncertainties over
the impact of EU Enlargement on excise smuggling and cross-
border shopping are also heightened. The Government will
therefore review both the operational and principled justification
for retention of quantitive restrictions after 12 months in light of
developments in smuggling and shopping patterns, and in light of
progress made by the new member states to comply with the
minimum duty levels. Customs and Excise has plans in place to
explain the restrictions to the travel industry and general public.
1
Manufactured tobacco products includes cigars, cigarillos and
smoking tobacco.
2
Smoking tobacco is hand rolling tobacco (HRT) and pipe
tobacco.
The three statutory instruments mentioned in the Minister’s statement
were laid at this time, and came into force on 1 May 2004. 34 When this
legislation was considered by the House, the Minister discussed the
potential threat of tobacco smuggling from those accession states that
had not introduced the minimum EU duty rates on these products:
33
HC Deb 1 April 2004 cc 106-7WS. Further details were given in a press notice
accompanying this statement (HM Customs & Excise press notice, Tobacco restrictions
for travellers returning from some new EU Member States, 1 April 2004).
34
SI 2004/1002, SI 2004/1003, SI 2004/100413 Commons Library Briefing, 19 November 2020
Enlargement potentially damages the continued success of that
strategy, because we cannot be certain how smuggling patterns
will react. The risks appear to be significant because of the
potential smuggling profits of air passenger smuggling … the
price of a typical packet of 20 cigarettes is 40p in Latvia, 55p in
Lithuania and 65p in Poland. In the current EU, the lowest price
for a packet of 20 cigarettes is £1.40 …
Although quantitative restrictions will not influence the actions of
the large-scale smugglers, those that use containerised freight
traffic to smuggle their goods—the vast majority of tobacco
smuggling in this country is through freight, not through
passenger traffic—it is simply not safe to assume that organised
air passenger smuggling will be unaffected. Those low-duty rates,
low prices and low costs of travel mean that the new member
states must be seriously considered as attractive destinations, not
just for low-level individual smugglers and bootleggers but for the
organised gangs that operate and run air passenger courier
smuggling operations.
Members of the Committee may be interested to know that five
other member states—Belgium, Denmark, Finland, Germany and
Sweden—have said that they intend to take up the option of
applying the restrictions that we are considering. Austria has
indicated that it is likely to maintain the quantitative restrictions
that already apply. In addition, France and Ireland are still
considering their position. 35
The Minister also explained why these provisions dealt with tobacco
products only:
The measures are confined to certain tobacco products in certain
countries because there is no derogation in place for the 10
accession states not to meet the minimum duty levels for alcohol
from Saturday. Therefore, there is no corresponding decision for
us to take on putting a complementary measure in place. 36
In November 2006 the Minister announced similar transitional
arrangements for two new accession States:
I am today laying legislation confirming the introduction of
quantitative restrictions on travellers bringing cigarettes from the
newest EU member states, who are taking advantage of a
derogation allowing them to delay meeting minimum duty levels
on cigarettes.
The restrictions will apply from 1 January 2007 to cigarettes
bought duty-paid in Bulgaria and Romania. From that date
travellers to the UK bringing in cigarettes from Bulgaria and
Romania will be restricted, as they are currently, to a limit of 200
cigarettes.
The Excise Duty Points (Etc.)(New Member States) (Amendment)
Regulations 2006 and the Customs and Excise Duties (Travellers’
Allowances and Personal Reliefs) (New Member States)
(Amendment) Order 2006 allow the UK to maintain these
restrictions on travellers who are bringing back cigarettes from
Bulgaria or Romania. The Relief for Legacies Imported from Third
Countries (Application) Order 2006 makes consequential
amendments to the Customs and Excise Duties (Personal Reliefs
35
Eighth Standing Committee on Delegated Legislation, 29 April 2004 cc4-5
36
op.cit. c1514 Passenger purchases of alcohol and tobacco
for Goods Permanently Imported) Order 1992 (SI 1992/3193) so
that its territorial application includes Bulgaria and Romania.
While the minimum duty rates are not met, concerns and
uncertainties over the impact of EU enlargement on excise
smuggling and cross-border shopping are heightened. Therefore
where new member states take advantage of a derogation,
existing member states are entitled to maintain the same
restrictions on the import of cigarettes bought in those countries
for a travellers’ own use, as are currently applied to travellers
arriving from third countries.
Imposing restrictions in respect of Bulgaria and Romania will
maintain consistency of approach taken by the UK with other
countries that have yet to reach the EU minimum rates of duty,
extending to Bulgaria and Romania the current restrictions
imposed on eight countries that joined in 2004.
These restrictions will provide certainty for both travellers and HM
Revenue and Customs (HMRC) officers, and will also reduce the
frontline cost of countering smuggling. Once the legislation is
passed HMRC has plans in place to explain the restrictions to the
travel industry and general public. 37
When these provisions were debated in Standing Committee, Mr Healey
noted that restrictions would apply to cigarettes only because “both
Bulgaria and Romania are already meeting the EU minimum rate in
relation to [other tobacco products and alcohol].” 38 He also explained
that since the debate in Committee on the Order’s predecessor, both
Austria and Ireland had also introduced quantitative restrictions.
As noted above, these country-specific limits were transitional,
dependent on each country’s progress toward harmonising their duty
rates with the EU minimum, and the last of these arrangements expired
at the end of 2009. 39
37
HC Deb 29 November 2006 c105WS
38
Fourth Standing Committee on Delegated Legislation, 12 December 2006 c3
39
No equivalent transitional provisions were introduced with regard to the accession of
Croatia into the EU from 1 July 2013 (HMRC, Excise Information Sheet (13) 04:
Accession of Croatia to the European Union on 1 July 2013, June 2013).15 Commons Library Briefing, 19 November 2020
3. Brexit and the UK regime from
January 2021
Following the ratification of the Withdrawal Agreement and the UK’s
departure from the EU on 31 January 2020, the UK remains within the
Single Market, compliant with EU law, until the end of the ‘transition
period’ – the period over which the UK is to negotiate a new UK-EU
relationship. At present it is anticipated that this negotiation will be
completed by December 2020. 40
In the 2020 Budget the Government announced that it would consult
on the “potential approach to duty- and tax-free goods policy after the
transition period following the UK’s departure from the EU.” 41 This
consultation was launched at this time; the deadline for responses was
20 May. The document set out the context for the consultation …
The UK has left the European Union (EU) and entered a transition
period. The question for the rest of 2020 is whether the UK and
the EU can agree a deeper trading relationship on the lines of the
free trade agreement (FTA) the EU has with Canada, or whether
the relationship will be based simply on the Withdrawal
Agreement deal agreed in October 2019, including the Protocol
on Ireland / Northern Ireland. In either event the UK will be leaving
the single market and the customs union at the end of this year
and stakeholders should prepare for that reality.
… and the Government’s priorities for reform:
This policy area focuses on the reliefs from VAT and excise duty
that currently apply to certain types of goods sold to passengers
for export or those that are imported into the UK by passengers.
Currently these reliefs are largely set out in EU legislation.
There have been calls for changes to the UK’s duty-free and tax-
free regimes following our exit from the EU. Given the significant
complexities associated with any changes to the duty-free rules,
the government is seeking views from stakeholders to help
understand the impacts that any changes could have, to help
inform any future policy decisions.
The government has a number of objectives relating to passengers
after the transition period, and any changes would need to take
these into account:
• minimising disruption at exit and entry points
• minimising delivery challenges and expensive and time-
consuming infrastructure changes
• minimising revenue loss, particularly via tax evasion or
avoidance. 42
40
For a narrative of events see, Brexit timeline: events leading to the UK’s exit from the
European Union, Commons Briefing paper CBP7960, 10 June 2020.
41
Budget 2020, HC 121, March 2020 para 2.236
42
HMT/HMRC, A consultation on the potential approach to duty- and tax-free goods
arising from the UK’s new relationship with the EU, March 2020 p216 Passenger purchases of alcohol and tobacco
Following the end of this consultation, the Exchequer Secretary, Kemi
Badenoch, gave a Ministerial Statement setting out in detail the
Government’s plans for the VAT and excise regime for goods carried
across borders by passengers. The Minister’s statement is reproduced in
full below:
Kemi Badenoch: The Exchequer Secretary to the Treasury
The UK has left the European Union and entered a transition
period. In light of this new relationship the government has
reviewed the excise duty and VAT treatment of goods purchased
by individuals for their own use and carried across borders in their
luggage. The government is today announcing the rules which
will apply to goods carried across borders by passengers travelling
to and from Great Britain to countries outside of the United
Kingdom. These changes will apply from 1 January 2021 when
the transition period comes to an end.
Currently these reliefs are largely set out in EU legislation, with
different rules for those travelling to or from the EU, and those
travelling to or from non-EU countries. This will have to be aligned
following the transition period so that EU and non-EU passengers
are treated equally. At Spring Budget, on 11 March 2020, the
government published a consultation on the potential approach
to goods carried across borders by passengers. There were a
range of views and evidence submitted in response to that
consultation and the government has had to balance competing
policy objectives, while taking into account the views of
stakeholders. A full summary of responses to the consultation has
been published alongside this statement.
This announcement focuses primarily on the treatment in GB. The
government continues to work with the Joint Committee on the
implementation of the Northern Ireland Protocol. The government
is also committed to providing guidance on how the Northern
Ireland Protocol will work, including for duty-free and tax-free
goods, ahead of the end of the transition period.
The government will make and lay a Statutory Instrument subject
to the negative procedure before the House of Commons in due
course to give effect to these changes from 1 January 2021. The
below summarises the final policy decisions.
Duty-free sales and personal allowances
The government is taking advantage of the opportunity provided
by the UK’s new relationship with the EU to enable passengers
travelling from GB to the EU to purchase duty-free excise goods
once they have passed security controls at airports, ports, and
train stations on international routes, on the same basis as
currently applies to passengers travelling to non-EU destinations.
This means passengers travelling from GB won’t have to pay UK
VAT and excise duty on these purchases of alcohol and tobacco
products when they travel to an EU destination. They will also be
able to purchase duty-free goods on-board planes on
international routes, on international train journeys and ships
sailing from GB to a destination outside the UK for consumption
on-board and to take-away. This is something that many
businesses have raised as part of the consultation and the
government will implement this as soon as the transition period
ends.17 Commons Library Briefing, 19 November 2020
At the same time, passengers travelling to GB from the EU will no
longer be able to bring back unlimited amounts of alcohol,
tobacco, or other goods (for example, clothing and electronics) for
personal use without making a declaration and paying the
relevant taxes. Passengers will instead have the option to bring in
defined amounts of alcohol, tobacco and other goods purchased
from duty- or tax-free shops, or with tax and duty paid on the
high street, in the EU without paying the relevant taxes and duties
on entry to GB.
These personal allowances currently apply to non-EU countries
and the government is now ensuring that EU and non-EU
passengers are treated equally. The government is also using its
new freedoms to significantly increase the current allowances for
alcohol for passengers arriving from both EU and non-EU
countries. This will allow a reasonable amount of alcohol to be
brought into GB, for example three crates of beer, two cases of
still wine and one case of sparkling wine, without the relevant
taxes being due. The current levels of allowances will remain for
tobacco products and all other goods.
Tax-free sales under the airside extra statutory concession
Currently airside tax-free sales of non-excise goods are permitted
under an extra statutory concession for those travelling from the
UK to non-EU countries. The government made clear in the
consultation that it had a number of concerns over how the
benefit is passed on to passengers and that in some instances the
relief is not consistent with international tax principles. As such,
the government is not extending tax-free sales to passengers
travelling to the EU but is instead withdrawing tax-free sales
across the UK for all passengers from 1 January 2021.
The VAT Retail Export Scheme
Similarly, the VAT Retail Export Scheme will not be extended to EU
visitors and will be withdrawn for non-EU visitors in GB from 1
January 2021. This means that overseas visitors will no longer be
able to obtain a VAT refund on items they buy in GB and take
home with them in their luggage. The VAT Retail Export Scheme
is a costly relief which does not benefit the whole of GB equally,
with current use of the scheme largely centred in London.
Retailers will instead continue to be able to offer VAT-free
shopping, consistent with international principles of taxation, to
non-EU visitors who purchase items in store and have them
delivered direct to their overseas addresses. Following the end of
transition period, this will also be available to EU visitors. 43
As noted in the Minister’s statement, the Government proposes to set
the same allowances for personal imports for all travellers coming to the
UK. Some respondents had argued that it would be sensible that
allowances set for alcohol imports to be based on the current ‘minimum
indicative levels’ (MILs) for passengers coming from the EU. The
Government agreed with the case for setting higher allowances for
alcohol imports, although not with setting them as high as this:
2.7 The government notes that the majority of stakeholders feel
that personal allowances should be extended to passengers
travelling from the EU at the current levels for those travelling
from non-EU countries. This would not affect passengers who are
43
Written Statement - HCWS448, 11 September 2020. See also, HM Treasury press
notice, Duty Free extended to the EU from January 2021, 11 September 202018 Passenger purchases of alcohol and tobacco
used to travelling to GB from non-EU countries but would be a
change for those travelling to GB from the EU, especially for those
who travel in their own vehicle by ferry or train.
2.8 The government also notes the health concerns raised by
some stakeholders regarding the current levels of tobacco and
alcohol allowances, and the feeling that they should be reduced.
However, The UK has the second highest excise duty rates in the
EU. This means that under current rules that people can travel to
an EU Member State, buy tobacco and alcohol products and bring
in unlimited amounts for personal use.
Many passengers currently purchase significant quantities of
alcohol and tobacco to bring into the UK because duty rates in
the EU are typically below the UK’s. Following the transition
period, the introduction of allowances for those entering GB from
the EU is therefore likely to reduce the amount of alcohol and
tobacco being brought into GB from the EU.
2.9 While in the minority of respondents, the government
recognises that some stakeholders who may be most impacted by
the introduction of allowances have requested a significant
increase in the alcohol allowance (while also 7 suggesting that
tobacco allowances remain at current levels). Many of these
respondents used the intra-EU MILs as a guide for the level of this
increase. For example, such an approach would see an increase in
the still wine allowance from 4 litres to 90 litres, and from 16
litres to 110 litres for beer.
2.10 MILs are one of a number of factors used by Border Force in
determining whether alcohol and tobacco products imported
from the EU are for a person's own use or are for commercial use.
They are not allowances – a passenger bringing in less than the
MILs to re-sell is still breaking the law, and a passenger who can
evidence that they are bringing in more than the MILs for their
own use would be unaffected. Furthermore, MILs are used only
for tax- and duty-paid goods. As such, the government’s view is
that MILs are inappropriate to be used as the allowances for the
amount of goods that passengers can bring into GB without
paying tax or duty.
2.11 However, the government understands the impacts that the
introduction of current non-EU allowances may have, particularly
on those stakeholders that deal with large volumes of EU
passengers travelling to GB in a vehicle by ferry or train. While
passengers will no longer be able to bring in unlimited amounts of
tax- and duty-paid goods for their own use, the government is
using its new freedoms to significantly increase the current
allowance levels for alcohol for all passengers. This means that
each passenger will be able to bring back, for example, three
crates of beer, two cases of still wine and one case of sparkling
wine to GB without paying UK duties. The current non-EU
allowances will apply to existing categories of tobacco and all
other goods for all passengers.
2.12 The government also believes the suggested allowance of
200 sticks for ‘heated tobacco’ is appropriate, given that it is
equivalent to the allowance for ‘conventional’ cigarettes, and will
introduce this category of allowance following the transition
period.
Table 1.A outlines the allowances that will apply to all passengers
entering GB from EU and non-EU countries from 1 January 2021:19 Commons Library Briefing, 19 November 2020
2.13 Current allowances for non-EU passengers apply equally to
goods purchased with tax and duty paid in the country of origin,
and to goods purchased free of tax and duty in export shops in,
for example, airports. This will continue to be the case for
personal allowances for both EU and non-EU passengers from 1
January 2021. This means that if passengers bring in goods over
their allowance, they must declare them. Passengers will need to
declare and pay tax on all goods they are bringing in within the
relevant category, not just those that exceed their allowance
within that category. 44
The majority of respondents supported the case for extending duty-free
sales to all travellers leaving the UK, although the Government
acknowledged that some respondents raised concerns as to the health
implications of this reform:
3.6 Following the transition period WTO rules broadly require the
government to treat goods carried by passengers bound for
different destinations equally, which would entail either removing
completely duty-free sales or extending them for EU-travel.
Offering duty-free sales to passengers travelling to the EU would
ensure parity of treatment with passengers travelling to non-EU
countries. It would also put GB on an even footing with the EU,
which has said it will allow duty-free shopping for passengers
travelling to GB from 1 January 2021.
3.7 The government is therefore taking advantage of the
opportunity provided by the UK’s new relationship with the EU to
enable passengers travelling from GB to the EU to purchase duty-
free goods at airports, ports, and international rail terminals. This
means passengers travelling to the EU won’t have to pay UK tax
and excise duties on alcohol and tobacco products which they
purchase and take abroad with them in their luggage. They will
also be able to purchase duty-free goods on-board planes on
international routes, on international train journeys and ships
sailing from GB for destinations outside the UK for consumption
on-board and to take-away. This is something that many have
raised as part of the consultation and it is something that the
government will implement as soon as the transition period ends.
3.8 The government also notes the health concerns raised by
some stakeholders. Although passengers will be able to purchase
duty-free goods on their way to the EU, passengers on most
routes will be limited to what they can carry, and will be required
44
HMT/HMRC, A consultation on the potential approach to duty- and tax-free goods
arising from the UK’s new relationship with the EU: summary of responses,
September 2020 pp6-820 Passenger purchases of alcohol and tobacco
to pay import taxes and duties on arrival in the EU if bringing in
goods over EU personal allowances. This will also apply to any
passengers returning to GB with duty-free goods as the
government is 11 removing the ability to bring back unlimited
duty-paid alcohol and tobacco for personal use. 45
By contrast a majority of respondents raised objections to the idea of
scrapping the VAT Retail Export Scheme (RES) and tax-free airside sales.
In the first case, “the main arguments against abolition were that the
scheme is felt to incentivise overseas visitors to spend more during their
visit and there was a feeling that sales may be displaced to other
countries … Instead, these respondents want to see the VAT RES
extended to the EU in digital form.” However, the Government argued
that “the scheme is an imperfect way to ensure that VAT is paid in the
place of consumption, not least due to the risk of fraud and non-
compliance”:
It is clear that the VAT RES is an inefficient method of seeking to
achieve taxation in the place of consumption. It is also a costly
system to maintain with unclear economic benefits and is
burdensome for exit points. While stakeholders feel the scheme
has benefits for the high-street, it does not benefit the whole of
GB equally, with purchases largely centred in London.
The government is therefore withdrawing the VAT RES in GB from
1 January 2021. This means that non-EU residents will no longer
be able to obtain a VAT refund on items they buy in GB and take
home with them in their luggage. Retailers will instead continue
to be able to offer VAT-free shopping, consistent with
international principles of taxation, to non-EU visitors who
purchase items in store and have them sent direct to their
overseas addresses. Following the end of transition period, this
will also be available to EU visitors. 46
In the second case, “respondents opposed the abolition of the scheme
and supported the extension of tax-free sales, especially at a time when
airside retailers are dealing with COVID-19 disruption”:
Respondents argued that airside tax-free sales can offset their
operating costs, can contribute to lower retail prices across the
board and that customers expect this treatment to be extended to
EU travel … Other respondents argued that the more non-
aeronautical revenue an airport receives (for example through
both tax-free and tax-paid sales in retailers), the greater the
opportunity for airport operators to be competitive and offset
operating costs for their partners. 47
The Government’s case for withdrawing this relief was set out as
follows:
The government is concerned that the current rules under the ESC
are applied inconsistently (for example applied to goods for
immediate consumption that are not exported) and about how
this would apply if legislation were implemented to permanently
allow this relief.
45
op.cit. pp10-11
46
op.cit. para 3.12-3, para 3.15, para 3.20
47
op.cit. para 3.22-421 Commons Library Briefing, 19 November 2020
The rules also allow for tax-free sales to UK residents who can use
the scheme for goods that will likely be brought back to the UK.
For example, a UK-resident 15 passenger could purchase a camera
VAT-free on departure, and then bring the camera back into the
country on return for long-term use, without tax having been
accounted for. This is not consistent with international tax norms,
in which VAT and excise on goods should be paid in the country
of consumption.
The government is also concerned that the VAT saving is not
consistently passed directly on to consumers, and that this would
continue to be the case. As such, the government will
permanently withdraw tax-free sales from 1 January 2021. 48
In her statement the Minister underlined that the proposals did not deal
with the movement of goods to and from Northern Ireland. The
Government’s response to the consultation adds that the Government
“continues to work with the Joint Committee on the implementation of
the Northern Ireland Protocol. The Government is also committed to
providing guidance on how the Northern Ireland Protocol will work,
including for duty-free and tax-free goods, ahead of the end of the
transition period.” 49
The response document confirms that the government “will make and
lay a Statutory Instrument subject to the negative procedure before the
House of Commons in due course to give effect to these changes from
1 January 2021.” 50 Notably the document makes no mention of the
anticipated Exchequer impact of these reforms.
To date there has been relatively little comment on the announcement,
although the proposals to scrap the VAT RES and the airside extra
statutory concession have been strongly criticised by some retailers, 51
and the potential impact of both measures has been raised in PQs.
In the first case, the Financial Secretary, Jesse Norman, has confirmed
that a costing for scrapping the VAT RES will be published at some point
in the future:
Sir Geoffrey Clifton-Brown : To ask the Chancellor of the
Exchequer, what estimate his Department has made of the
potential number of job losses resulting from the ending of the
VAT retail export scheme in the (a) retail and (b) tourism sectors.
Jesse Norman : The Government has announced that the VAT
Retail Export Scheme will not be extended to EU visitors, and will
be withdrawn for all non-EU visitors, following the end of the
transition period. However, retailers will continue to be able to
offer VAT-free shopping to non-EU visitors who purchase items in
store and have them sent direct to their overseas addresses and
this will be available to EU visitors following the end of the
transition period.
48
op.cit. para paras 3.26-7
49
op.cit. para 1.4
50
op.cit. para 1.13
51
See, for example, “UK retailers look to challenge scrapping of VAT relief for overseas
visitors”, Financial Times, 14 September 2020; “Chancellor warned scrapping tax-
free shopping risks 70,000 jobs”, Guardian, 20 September 2020You can also read
