VAT stands for “Value Added Tax”. It is a bit different from the sales tax that Americans are used to. It is a tax that it is added at every step along the supply chain where value is added. In the United Kingdom the VAT rate stands at 20% for most purchases. This makes prices on your London shopping spree seem higher than in New York.
The good news is, if you are not an EU resident (pre-Brexit), you can get a VAT refund on items to be taken from the country under certain circumstances. The VAT refund process in the UK is different from what I’ve seen in other EU countries.
In the Netherlands, for example, if you spend over a certain threshold at a shop and, if the shop owner is aware of the VAT refund paperwork, you’ll get a form that needs to be shown at a customs window at the airport. Sometimes you’ll also be asked to show the merchandise purchased to prove that it is leaving the EU. The customs officer will stamp the form and you mail it to the vendor for the refund. You can do this once when leaving the EU for all items purchased, even if purchased in other EU countries on the same trip.
One year at the Friedrichshafen Ham Radio show I purchased a nice handheld digital transceiver which cost about double in the USA at the time. In this case, the vendor’s bank charged a hefty wire fee for the transfer to my bank. The fee ate up much of the refund. The wire fee is avoided if the vendor participates in a program called Global Blue. In that case, Global Blue will refund the VAT directly to your credit card. This is the ideal situation and you get the full amount of your tax refunded to your credit card in the currency used for your purchase.
The UK, however, does things a bit differently. They have outsourced the VAT process at Heathrow to the money changing behemoth Travelex. Travelex makes its money by charging fees to move money between currencies. In this case, they are taking a percentage of the VAT and then charging you again for a currency exchange because they want to refund your VAT in US dollars rather than credit the full amount back to your credit card as Global Blue does. At least this is how it went down during our recent trip. Expect to get only about 11% back.
The transaction took place so quickly that I did not have time to think about it until afterward. Next time, I will insist that they refund the VAT in the currency of purchase to the credit card used for the purchase. We’ll see how that goes and if it results in a larger return.
Another unusual aspect of the Travelex VAT process is that it takes place outside of the security screened part of the airport. So, they don’t even really know that the merchandise or you are leaving the country that day. Strange indeed.