Chancellor blasts ‘unacceptable’ practice that sees some stores keep 50p in every £1 of VAT discounts, without passing them on

Passengers by the World Duty Free store in Terminal 5 at Heathrow
Travellers in the summer threatened to not show boarding cards when making purchases. Photograph: Steve Parsons/PA

The government is launching a review into airport retail taxes after revealing that shops are ripping off travellers by failing to pass on up to 50% of their VAT savings to customers.

George Osborne described the practice as unacceptable, as he highlighted research by HMRC showing that some stores are keeping as much as 50p in every £1 of their VAT discounts without passing them on.

Anger over VAT relief in airports triggered a consumer revolt in the summer, with customers threatening to refuse requests from retailers to hand over their boarding cards when making purchases.

It emerged that retailers were using information on the cards to secure a tax saving, because most goods sold by airport stores to passengers travelling outside the European Union are exempt from VAT charges of up to 20%.

“VAT relief at airports is intended to cut prices for those travellers – not be a windfall gain for shops,” said the chancellor. “But 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. I have launched a review to make sure that this VAT relief benefits those it’s intended for – consumers.”

Travellers rebelling against the VAT relief regime in the summer said they felt obliged to hand over boarding cards at checkouts for security reasons or because they were getting a discount.

The review is expected to report in early 2016, and will also look into other tax breaks at airports, including duty free and extra-statutory concession relief, which covers retailers’ exemption from payment of VAT on goods sold in duty free and tax free shops.

At the time, the financial secretary to the Treasury, David Gauke, claimed that some of Britain’s top retailers were pocketing millions of pounds from the VAT discounts.

Retailers including Boots, Dixons and WH Smith were criticised for not passing on discounts to individuals who were travelling outside the EU.

Martin Lewis, founder of, said: “It’s nice to see the government catching up with what the rest of us have been saying for a long time.

“Airport retailers have been taking the mick. Even after the huge fuss last summer when you walk into a WH Smith at the airport and use the self-service till it asks for your boarding pass and if you do show it, the retailer gains and you don’t.”

He said retailers were potentially holding on to more than half of the VAT savings and should be offering non-EU travellers discounts at the till. Lewis said passengers should not show their boarding cards, except in duty free stores where it is necessary, unless they got a discount.

Retailers say it is too complex to give discounts to individuals flying outside the EU only and that the savings are instead spread across all goods in airport stores.

A spokesperson for Boots said: “Rather than offering different price points to some customers travelling outside the EU, we want all customers to benefit from consistently low prices.

“In fact, over the past few years we have invested in lowering prices in our airport stores, despite operating costs at airports being higher than in other locations. We already offer the lowest prices of any retailer on many items sold airside.”

The spokesperson said it had never been compulsory for shoppers to hand over their boarding passes and its assistants are currently not asking customers for them while it undertakes a “long term review of this situation”.

Boots said many of the items it sells are not subject to VAT or are only charged at a low rate, a similar position to WH Smith. WH Smith says over half its sales at airports, including books, sandwiches and magazines, are not subject to the sales tax.

“The limited benefit that we obtain in our other product categories, where customers travel outside of the EU only, is reflected in our single pricing policy for all customers, which overall provides better value,” a spokesman for WH Smith said.

A spokesperson for Dixons Travel, the electrical goods retailer, said: “To ensure all customers visiting our airport stores receive excellent value, we operate a single, best value pricing policy.

“We monitor these prices twice a week against the high street and online, to ensure they remain competitive and have a ‘double the difference’ price promise for added peace of mind.

“We await full details of the review and will work closely to offer our full support.”

Lewis says prices in airport stores are not cheaper than the high street and the government review should ensure retailers are more transparent about how, and if, savings are being passed on.

“Why not pass on the discounts [to individuals travelling outside the EU]? What is so difficult about that? To say it’s complicated is simply balderdash,” Lewis said.

[Source:-the gurdian]

By Adam