The UK VAT refund is far from simple and requires a lot of time and energy and may not always be worth it. The key thing is to get to the airport on time because just getting the vat refund can take an hour as there is usually a queue of folks for vat refund. Last time I was too late so couldn't get it done but I got an HP laptop for my sister just last week and managed to reach Heathrow with 30 min to spare and do the refund.
You have to queue up in 2 different places, first before you check in and then after you check in. Every terminal in Heathrow has a VAT refund area.
Here is how it works, first you have to buy the product in a store that operates the UK vat refund scheme, not all stores operate this, though most stores on Oxford street, Regent street do. Online stores don't. Next when purchasing the item in the store you have to inform them you want to claim a VAT refund before purchase, and ensure they fill in the VAT refund form and give it to you.
Note you will not get the full 17.5% refund, usually there is processing charge and it will be around 10-13%, there are set slabs according to the final price of the product for instance between 440-500 pounds will get you a $40 refund etc, between 500-560 pounds maybe 50 pounds etc
Reach Heathrow with an extra hour and line up at the VAT refund area before you check in to get a refund slip, here you will have to show the product, the bill, and the vat refund form. Usually there is a queue unless you get lucky and the customs folks will stamp the vat refund form and give you a form to fill on refund method. You can choose to receive a cheque in your bank account in India, get a refund on your credit card with which you used to make the purchase, or choose cash. If you choose cash there will be a further 2-3% charge and you will have to get this from an assigned foreign currency desk in Heathrow, its usually near the second vat refund area after check in.
Next make sure you have whatever you are claiming VAT for with you, if you check it in its likely you won't get a refund because the customs officer after checkin may want to look at the product.
Once checked in head for the second VAT refund counter beyond check-in and prepare to queue up. Here the customs officer will stamp the vat refund form and the payment method form and may ask to see the product and the bills so have it ready. If you choose cheque, they will mail the cheque to you, or refund on your credit card. If you choose cash take the stamped form to a assigned foreign currency cum vat cash refund counter. They will be small processing charge, around 2-3% and they will take the form and give you the cash in a currency of your choosing.
Tip - Since the foreign currency counters poor exchange rates I would advise you to take the refund in pounds only. If you choose US dollar you will get a really poor UK pound to US dollar conversion rate. Hope this is helpful for all the folks wondering about the VAT refund.