Out-Law News 2 min. read

Airport retailers 'must pass VAT savings onto customers', says UK government


Retailers operating 'airside' at UK airports should ensure that the benefits of tax free shopping are passed on to their customers, the government has said.

HM Revenue and Customs (HMRC) will lead a review of airport sales, in order to ensure that travellers are benefitting fully from VAT relief and other savings. Some retailers are currently keeping up to 50p in every £1 of VAT potentially saved rather than passing the saving on to the customer, according to government estimates.

"VAT relief at airports is intended to cut prices for travellers – not be a windfall gain for shops," said George Osborne, chancellor of the exchequer.

"Many people could be paying over the odds for their purchases because the government's VAT concession isn't passed on. This is simply unacceptable ... This review will consider ways to ensure prices reflect VAT savings as well as savings on duty," he said.

He said that HMRC would report on its findings "early in 2016".

In August 2015, the Independent newspaper reported that "the majority" of airport retailers were "passing little if any" of the VAT charged on products sold to customers travelling outside the European Union back to their customers. Instead, they were "using the tax rebate to boost the profits of their airport franchises", the newspaper said.

The Independent subsequently reported that many travellers had begun refusing to show retailers their boarding pass at the point of purchase. The practice is not legally required of purchases from general retailers, but is used to establish whether a customer is travelling to a destination within or outside of the EU.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that some of the retailers whose pricing practices had been criticised by the Independent had claimed that it would be "too complicated" to charge different rates of VAT on different purchases. However, "all high street coffee shops" and others selling food to eat in or takeaway already had to do this, she said.

"That said, it might be open to abuse because a non-EU traveller could 'lend' their boarding pass to an EU traveller in order to make the 20% saving, so it might lead to cumbersome passport checks as well," she said.

"One outcome of the government review may well be that airport retailers lose what seems to be a concession anyway. Although the boarding card is used as proof of export, this will not always be the case: for example, if the customer eats their bar of chocolate before getting on the plane," she said

However, Self rejected claims by some media outlets that travellers may be able to "reclaim the VAT that they had been overcharged" depending on the outcome of the review.

"Non-EU travellers have not been overcharged VAT, but have instead been charged a higher amount for the goods themselves so that all travellers pay the same price whether or not VAT is payable," she said. "This additional margin on non-EU sales allows the retailer to offer a single price to all travellers which is lower than the price available on the high street. This review will seek to establish how much lower that price is in reality."

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