Airport shops cheating passengers out of £ millions in VAT fiddle
The Financial Secretary to the Treasury, David Gauke said he was concerned and disappointed that airport retailers were pocketing millions of pounds in VAT discounts without passing the savings to customers. And that this should stop. Stores at airports demand that passengers present their boarding cards at checkouts before paying for any goods, in order to avoid paying 20% VAT on everything they sell to customers who are travelling outside the EU. Most of these stores, including Boots and W H Smith, do not pass on the savings to passengers. The Independent says this ruse is also used by so-called “duty-free” shops to boost their profits on alcohol sales, thereby making profits of up to 100% on each alcohol sale they make to travellers leaving Europe. UKinbound chief executive said visitors to the UK already have the impression that the UK is an expensive destination – and this is not helping. The airports charge retailers huge rent, to have the privilege of a store in the captive market that is the airport departure lounge. Exact figures are hard to come by and not publicly available, but Heathrow alone last year made around £400m in rental income from its airport 345 concessions and stores. Unlike on the high street Heathrow does not charge its stores a set flat rent – but rather a % of their net sales. On average each retailer is paying over £1m a year in rent. If airports did not charge so much rent to their shops, they would not be as profitable. This story confirms the adage of airports being “shopping malls with a runway attached”.
Airport VAT scam: Treasury ministers demand end to rip-off charges and to pass savings on to passengers
Mass revolt across Britain as thousands refuse to show their passes after huge VAT scam is exposed by The Independent
By OLIVER WRIGHT and SIMON CALDER
12 August 2015
Treasury ministers have demanded an end to rip-off VAT charges by some airport stores as the grassroots passenger rebellion against the racket gathers pace.
The Financial Secretary to the Treasury, David Gauke, told The Independent he was concerned and disappointed that some of Britain’s top retailers were pocketing millions of pounds in VAT discounts without passing the savings to customers.
The practice, where stores demand that passengers present their boarding cards at checkouts before paying for any goods, was first revealed by this newspaper last week.
The information is used by stores to avoid paying 20 per cent VAT on everything they sell to customers who are travelling outside the European Union. Most of these stores, including Boots and W H Smith, do not pass on the savings to passengers.
The Independent can also reveal the ruse is used by so-called “duty-free” shops to boost their profits on alcohol sales.
Mr Gauke said the intention behind VAT relief at airports was to help passengers and not to line the pockets of retailers – and called for the practice to stop. “The VAT relief at airports is intended to reduce prices for travellers not as a windfall gain for shops,” he said.
“While many retailers do pass this saving on to customers it is disappointing that some are choosing not to. We urge all airside retailers to use this relief for the benefit of their customers.”
Since the practice was exposed last week thousands of people have taken to social media to say they will now refuse to show their boarding cards at airports stores to stop the profiteering.
Many passengers claim to have been misled by airport shop staff who told them presenting a boarding card was obligatory – and even required for security purposes.
On 11 August travellers reported a confusing picture, with some stores agreeing to sell goods without the need for a boarding card while others refused. “I just bought a toothbrush and toothpaste from Boots and they sold it to me even when I refused to give them my boarding card,” said Andrew Buurman, who was travelling to Boston with his daughter. “Then I tried to buy some sun cream from World Duty Free and they refused to sell it to me without a boarding card.”
A former Boots worker said: “I used to work at a UK airport [and] I remember a colleague asking a manager once why we were required to ask for boarding passes. She explained it was so we could pay less tax on transactions where customers were flying outside the EU, though she also said we weren’t to tell customers that.”
But VAT appears not to be the only tax saving that stores are failing to pass on to customers. The Independent has established that some airport shops are making profits of up to 100% on each alcohol sale they make to travellers leaving Europe.
Most so-called “duty-free” stores in UK airports now operate a single pricing policy for the majority of alcoholic drinks they sell regardless of where passengers are travelling in the world, which is not illegal. While this represents a modest saving on high-street prices for travellers within Europe it creates a profits bonanza for stores on sales to passengers leaving the European Union.
For every one-litre bottle of spirits sold, the stores save around £11.06 in alcohol-specific duty charges as well as avoiding paying VAT. For each bottle of wine sold they save £2.73 per litre and £3.50 on champagne.
But little of these savings are passed on to customers. World Duty Free, which has concessions at Heathrow, for example, charges customers £16.49 for a bottle of Absolut Vodka compared to a high-street price of around £20 – a saving of less than 20 per cent. Most high-street retailers operate on profit margins of around 25 per cent, meaning that World Duty Free is making a profit even on the alcohol it sells to EU travellers. For non-EU travellers the store could be making as much as £9 in profit on each bottle sold at £16.49.
A spokeswoman for World Duty Free confirmed that it was a requirement that passengers who purchase any goods from the store produce “a valid transport document”.
The Money Saving Expert founder, Martin Lewis, called on travellers to refuse to let airport retailers scan boarding passes.
Speaking on BBC Radio 2 to Jeremy Vine, he said: “What we need to do, if we want to get them to change their policy, is quite simple: those of you who are going away this summer outside the EU, when they ask for your boarding pass, say, ‘No, sorry, I’m not going to give it to you: it only gives you a reduction. Unless you pass that on to me I’m not going to give it to you. Please tell your bosses.’”
Mr Lewis said travellers should ignore claims by retail staff that showing a boarding pass is obligatory: “You’re not protecting the sanctity of Britain by giving them your boarding pass – you’re enabling the commercial company to get a reduction on its tax bill.”
A spokeswoman for the campaign group 38 Degrees said: “It’s time for retailers like W H Smith and Boots to pass their savings on to their customers, rather than using them to line their shareholders’ pockets.”
Q&A: Simon Read’s guide to airport sales taxes
Q | What is duty free?
A | The term refers to the old excise duty charged on cigarettes and alcohol and certain other items.
There was no duty due on items bought outside the country – up to certain low limits – which meant holidaymakers could bring home a bottle of booze and a box of fags bought abroad, often at airports, without having to pay UK duty or tax.
That all changed in the 1990s after a number of European nations campaigned for duty-free sales within EU states to be scrapped, which they were in 1999.
Q | What’s happened since then?
A | “Duty-free” now strictly refers to cigarettes, tobacco and some spirits which are bought by British travellers to take to countries outside the EU, and brought in from outside the region. At airports you’ll see that items are labelled “available for non-EU destinations only”.
Q | So what’s the current row about?
A | It’s around the so-called “tax-free” prices that many airport shops offer. This is the price of an item before VAT has been added at 20 per cent. The problem is that many airport shops offer items for sale at the same price as they do in the high street – despite no VAT being due on any items you pay when travelling outside the EU.
It means that if you pay £6 for a bottle of sun cream, for example, the retailer doesn’t have to pass on the £1 VAT included if you’re heading outside the EU. Yet it charges you the full amount, including what it would normally pay in VAT. In other words, it pockets the tax element to boost its profits.
The total extra tax retained by retailers adds up to tens of millions each year. Campaigners say they should share that effective windfall with consumers, passing on at least some of the tax benefit to shoppers.
UKinbound chief executive Deirdre Wells has joined the debate by urging shops not to be greed, saying: “We are very concerned to hear that some retailers are not passing on the VAT refund which is due to visitors from outside the EU.
“The UK already suffers from a perception that it is an expensive destination – and this is not helping.
“Retailers need to recognise the important contribution which inbound visitors bring to the UK and make them feel welcome, not pocket the tax refund which is rightfully theirs.”
The government’s financial secretary David Gauke has also urged airport shops to do the decent thing, saying: “The VAT relief at airports is intended to reduce prices for travellers, not as a windfall gain for shops.
Airport VAT: How I unearthed the great boarding pass scam – and led the charge to end it
By OLIVER WRIGHT
16 August 2015
Every time my boarding card had been requested at the checkout it had perplexed me
It is a scene repeated thousands of times a day at airports up and down the country.
Travel bag over your arm, carrier bag in one hand and the toothpaste, suncream and plug adaptor you’ve forgotten to pack balanced precariously in the other. You get to the checkout, put your goods on the counter and take out your card to pay.
The sales assistant looks at you somewhat contemptuously. “Have you got your boarding card?” she says – not as question, but as a weary command.
You put down your carrier, rummage around in the side pocket of your bag, pull out a crumpled piece of paper and hand it over compliantly. It’s far from the worst thing in the world but it makes the whole experience of travelling by air just one notch more unpleasant.
The question that has always perplexed me is: why? Over the past few years, every time I’ve gone abroad, I’ve made a mental note that when I get back I’ll investigate. And every year, by the time I get home I’ve forgotten about it.
But this year was different. I did remember, and on a quiet day in the office I decided to try to unravel what was going on.
I ruled out security, on the grounds that it made no sense at all, and phoned up Her Majesty’s Revenue and Customs to ask them if they knew why passengers had to present their boarding cards at the checkout in airports.
A few days later they got back to me. There was no legal reason, they said. But airport stores could claim back the VAT on purchases made by people flying out of the EU – as long as they had the evidence in the form of a scanned boarding card.
On the face of it, that seemed pretty outrageous to me. We, the passengers, were not getting the savings: the stores concerned admitted to me that they charged the same at the airport as on the high street. But here they were, making millions of pounds a year by inconveniencing us and taking the 20 per cent VAT saving for themselves.
More to the point, it seemed like a scam that needed to be written about. I phoned the Consumers’ Association (who run Which? magazine and usually champion these kinds of issues) to ask what they thought. But they couldn’t have been less interested. “We haven’t done any research into it,” they told me. “It’s not something we can talk about.”
“But I can send you what HMRC say,” I offered. But it was to no avail. “Look, we will not be commenting,” I was told firmly.
When I pointed out to them that this seemed a bit odd, given their self-proclaimed role protecting consumers, they told me I was being rude. Hmm.
Dispirited, I phoned up Paul Lewis of Radio 4’s Money Box Live as well as our own travel editor, the brilliant Simon Calder. What did they think? Both of them were as outraged as I had been. Yes, it was a story, they said, and agreed it was worth writing about.
So we did. Last Saturday morning The Independent put the great VAT scam on its front page – and gratifyingly kicked off a campaign of gentle civil disobedience. Friends reported seeing people buying a copy of the paper – which they had been attracted to on the news stand – and then refusing to hand over their boarding card when they paid for it.
Twitter was predictably but rightly outraged. Facebook went into “share” overdrive.
Then other papers starting picking up the tale. The Daily Telegraphcommissioned an online poll of its readers. The Daily Mail, never one to pass on a good consumer-outrage story, joined the fray. Five days later, when ministers intervened to call for the practice to stop, the BBC decided that it too should report the story.
The message was simple: why should we all be inconvenienced just so that stores can take money off us that should rightfully be ours? And now, a week on, Boots has climbed down and said it will end the practice.
WH Smith and Dixons are still attempting to hold out. But resistance is futile. Anyone who has been in the country this week and who listened to news on the radio, watched the television or read a newspaper now knows about the practice and how to stop it.
As one traveller remarked on Twitter: “At Heathrow, a joy to watch old men loudly refuse to show their boarding cards. Truly, our own Arab Spring.”
As one commentator below the article commented: … “this illegal activity is anti-competitive. i.e a company landside at Heathrow has a competitive disadvantage with a company airside. This is permitted by HMRC providing an illegal opt out and should be stopped. It’s a rip off, anti competitive and illegal.”
Airport VAT scam: Are high airport rents, rather than greedy retailers, to blame?
11 August 2015 (Independent)
By Oliver Wright
The VAT wheeze is, in a way, a ‘victimless’ sleight of hand that helps them turn a profit while still paying sky-high rents
Why is it that a respected retailer such as Boots would knowingly indulge in the slightly underhand practice of pocketing VAT savings without passing on the benefits to its customers?
The answer may lie in the prices retailers themselves are charged for the privilege of opening a store in the captive market that is the airport departure lounge.
Exact figures are hard to come by but Heathrow alone last year made around £400m in rental income from concessions, including food outlets, in its airport stores. Unlike on the high street Heathrow does not charge its stores a set flat rent – but rather a percentage of their net sales.
This rate varies from retailer to retailer and the figures are not publicly available. But Heathrow has 345 concessions which means, on average each retailer is paying over £1m a year in rent.
Clearly some stores will be paying more than others but if you are a company like Boots, which has a presence in every terminal, you are clearly going to have to sell a lot of toothpaste and sun cream if you are still going to turn a decent profit after you’ve paid your rent.
So what to do?
Customers would be rightly peeved if they felt they were being charged a premium for goods bought at the airport. And Heathrow itself strictly controls what prices stores charge it as seeks to promote itself as a shopping destination that provides value for money.
So the VAT wheeze is, in a way, a “victimless” sleight of hand that helps them turn a profit while still paying sky-high rents. But consumers should not be fooled: their purchases are what makes the airport business such a profitable one.
The airport VAT ‘rip-off’ explained: What’s going on, which shops are involved and how to fight back
By CAMILLA CANOCCHI FOR THISISMONEY.CO.UK
13 August 2015
What is going on?
Passengers shopping at UK airports before boarding flights are used to showing boarding passes to staff at shop tills, usually under the impression that they are legally obliged to scan them.
But last weekend, many rebelled against some airport stores after it emerged the only reason they were asked to show boarding passes was for retailers to benefit from tax discounts which they do not then pass onto customers by lowering prices.
Most goods sold by airport stores to passengers travelling outside the European Union are exempt from 20 per cent VAT.
Retailers such as Boots and WH Smith are accused of including the VAT in the price charged to customers as prices at the airport are very similar or the same as on the high street.
On Tuesday, David Gauke, financial secretary to the Treasury, intervened and demanded airport stores pass on the VAT relief to travellers by cutting prices.
Who should be entitled to a discount and which goods should be cheaper at the airport?
People travelling outside the EU should not have to pay 20 per cent VAT on goods purchased at the airport.
Goods ranging from soft drinks, cosmetics, electricals and snacks carry VAT and therefore they should be cheaper at airports for customers travelling outside the EU.
But most food, books, magazines, newspapers, children clothes and other items will not be cheaper because they are exempt from VAT.
So do you have to show your boarding pass?
Yes and no.
You do not need to show your boarding pass if you buy most goods such as cosmetics, soft drinks or electronic goods.
However, you need to show it at duty-free shops if you buy alcohol, cigarettes or tobacco as these goods are subject to different taxes from the Government.
A spokesman for the HM Revenue & Customs said: ‘There is nothing in VAT law to require the production of a boarding pass to purchase goods in airport shops, but without such evidence the supply cannot be zero-rated as an export.’
This means that if you refuse to scan your boarding pass at the till, the store will not be able to claim back the VAT.
Which shops are ripping you off?
Retailers such as Boots, WH Smith and Dixons all charge similar prices on the high street and airports. This means that prices at the airport are set as if they are inclusive of VAT at 20 per cent.
For example, a bottle of Nivea sunspray at UK airport branches of Boots sells for £8. Boots can reclaim £1.60 VAT on every sale to customers travelling beyond Europe, but it does not pass on that discount to the customer.
If shops are showing two prices – one including VAT and one without – then they probably not ripping you off.
A Burberry checked cashmere scarf that costs £335 on the high street is priced at £279 at the airport.
Staff at the luxury fashion brand at Heathrow airport over the weekend said boarding cards had to be shown to benefit from VAT-free prices.
Are duty-free shops ripping you off too?
Only cigarettes, tobacco and alcohol are ‘duty-free’ goods. It means that the shops selling them, like World Duty Free, do not pay duty or VAT. This is because they are treated as exporters by the taxman.
Normally these stores display two different prices – one with and one without the excise duty, so shoppers travelling outside the EU are supposed to make savings.
Airport shops refuse to pass on VAT savings: WH Smith, Dixons and Boots under pressure after refusing to change their prices
• Pressure building over ‘duty free’ shops pocketing VAT saving at airports
• WH Smith, Dixons and Boots are under fire but still won’t change prices
• More than 2,000 people signed a petition calling for an end to the ‘scam’
• Passengers have protested by refusing to hand over boarding passes
• By CLAIRE DUFFIN FOR THE DAILY MAIL
13 August 2015
Pressure was mounting last night on airport retailers to pass on tax savings to customers.
Experts joined consumers in calling for fairer prices at airport duty-free shops after it emerged that stores were using passengers’ boarding passes to benefit from tax exemptions to the tune of millions of pounds.
Until now, it was widely believed that the travel documents were required in shops for security reasons or passenger surveys.
In fact, the purpose is to allow stores to escape paying 20 per cent VAT on any products they sell to people travelling outside the EU.
Purchases made by such passengers are exempt from VAT and shops ask to see boarding passes so they can prove to HM Revenue and Customs that goods have gone out of the EU.
But many airport shops charge all passengers the same, regardless of whether VAT is due.
Boots, Dixons and WH Smith – identified as the worst offenders – have so far refused to change their prices.
Some shops charge similar prices at airports as they do on the high street. For example, a bottle of Nivea sunspray at airport branches of Boots sells for £8. Boots can save £1.33 VAT on every sale to those travelling beyond Europe, but it does not pass on that discount to the customer.
Last night, more than 2,000 people had signed an online petition urging retailers to ‘end the airport sunscreen scam’. Addressed to Boots president Simon Roberts and Stephen Clarke, chief executive of WH Smith, the petition calls for VAT savings to be passed on to passengers ‘rather than using an underhand method to reduce your tax bill’.
And at airports, passengers have protested by refusing to show their boarding passes after learning it was not a legal requirement. The Retail Ombudsman – set up in January to help shoppers settle disputes – said it had been so ‘inundated’ with complaints that it is taking on more staff to handle them all.
WH Smith said it was too difficult to introduce ‘dual pricing’, but the claim was undermined by the fact that several retailers already have.
Lord Harris, chairman of the National Trading Standards Board, said airport shops that failed to pass on the tax relief were ‘quite clearly profiteering’.
He suggested retailers should have two queues with different prices for customers travelling inside the EU and those going further afield.
Boots pledged late on Wednesday to stop asking for boarding passes while it reviewed the situation. But it has refused to change prices, along with Dixons and WH Smith – despite a plea from the Treasury for airport stores to pass on the VAT relief to travellers as is intended.
Dixons said it offered ‘one single, great-value price across products; underpinned by our price promise’.
Boots said: ‘Rather than offering different prices to some customers travelling outside the EU, we want all customers to benefit from consistently low prices.’
WH Smith has said that ‘any VAT relief… is reflected in our single price and extensive promotional offers provided to all our customers’.