VAT taxes and refunds

VAT is the built-in national sales tax in the U.K. (Photo altered from Images Money)
VAT is the built-in national sales tax in the U.K.

Taxes in the U.K. and how you may be able to get some of that VAT refunded

In the United Kingdom a 20% value-added tax (VAT) is figured into the price of most items.

Unlike in America, where sales tax is (mostly) a state-by-state phenomenon that gets added on at the cash register, in Europe sales tax is national, standardized, and already included in the price tag.

That is nice, in that there's no math to do in your head, but it's awful in that you end up paying this VAT automatically, even though, as a tourist, you are not obligated to pay the VAT.

However, foreign visitors from non-E.U. countries can reclaim a percentage of the VAT on purchases of consumer goods.

Why you often have to pay the VAT anyway

Most shops are not set up for the cashier to check your non-EU status every time you buy a souvenir T-shirt showing the London Tube map. They simply charge everyone the VAT, leaving it up to those who do not actually owe it to get a refund later. 

How to get a VAT refund

The refund system doesn't kick in it unless you drop a chunk of change all at once in one store. Luckily, this minimum bar in the U.K. is just £25 (roughly $34)—much lower than it is elsewhere in Europe, where it can range upwards of $200. That means you have to spend at least £25 in a single shop to get a VAT refund.

There are two ways to get a refund:

1. Shop at "Tax Free Shopping" stores

Many shops are now part of the "Tax Free Shopping" network (look for a sticker in the store window). These shops either:

  • Issue you a plastic wallet card at your first shop, which you can then use at all subsequent shops and, at the end of your trip, redeem at the airport (more on that below).
  • Issue a check along with your invoice, which—after you have the invoice stamped at customs—you can redeem for cash directly at the Tax Free booth in the airport (usually near customs or the duty-free shop), or you can mail it back to the store in the envelope provided within 60 days for your refund.
  • In some cases, the store takes care of all the hard work—you fill out the form on the spot at the register and they mail it back for you then reimburse your credit card.

2. The VAT refund paper chase

For stores that do not offer Tax Free Shopping for tourists, get ready to do some paperwork.

Getting the VAT refunded involves telling the store clerk you're going to be asking for the VAT back (they'll give you receipts and forms to carry with you) then filling out more forms at the airport.

Note that you redeem all your receipts at once, when you are getting ready to leave the last EU country on your itinerary. (In this case—and until Brexit takes effect—an "EU country" means all of Western Europe except Switzerland, Norway, and Iceland; and all of Eastern Europe minus Bulgaria, Romania, and Turkey—the latter three are up for membership.)

That means bring all your receipts for every EU country to the airport from which you depart. So if you're flying home from Paris, you can take all your British, Italian, German, Spanish, and French receipts to the customs agent at Charles de Gaulle airport.

Before you even check in for your flight, you must visit the local Customs office at the airport with the receipts and the items you purchased—this is in case the officer wishes to inspect your purchases (which rarely happens).

The Customs agent will stamp your receipt and give you further directions—usually, after going through check in and security, you head to a private VAT refund desk inside the airport and deal with more paperwork there.

In some cases, they give you a refund on the spot (taking a fee of anywhere from 4% to 13% for the service, depending on how much you are getting refunded).

The problem is, while they can sometimes give you a refund in your home currency, in my experience they almost always give you the refund in the local currency.

So there you are, about to leave the country, and they hand you a stack of pounds (or, if on the mainland, euros). You now have all of the 20 minutes before your flight boards in which to try to spend it. (Duty Free shops and other airport impulse-buy stores must adore this system.)

More often, the stamped receipt is sent back to the store and your reimbursement is credited against your credit card or sent to you by check. Either way, this can take forever.

Typical waiting time for a VAT refund is 4–8 months. The longest I've ever waited was 18 months for a few bucks back from some Irish sweaters.