Airport VAT scam: Treasury ministers demand end to rip-off charges and to pass savings on to passengers

Exclusive: Mass revolt across Britain as thousands refuse to show their passes after huge VAT scam is exposed by The Independent

World Duty Free at Heathrow Terminal 2 (Reuters)

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.

“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.”

Boots have reminded employees that customers are not obliged to show their boarding passes (BAA)

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 per cent 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.

World Duty Free at Heathrow Terminal 4 (BAA)

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”.

Holidaymakers shopping at Heathrow terminal 5 (Getty) (Getty Images)

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.

Boarding farce: What passengers say

Ian Harris, 50, is an event planner travelling to Miami

I always thought it was for security reasons. Shops should certainly be more clear. It’s just more information they’re taking from us. Even if they were clear about their reasons, I might still say “no” to showing my boarding pass. It depends if I’m in a good mood or not.

Kendall, 21, is living in the UK on a gap year and was travelling back to Cape Town

I thought duty free just meant “no tax”. I wasn’t aware at all that it wasn’t a legal obligation to show your pass. It’s not actually much cheaper in duty free anyway – it’s a bit of a scam on travellers. I just did it because I thought I had to, but now I’ll refuse.

Agnes, 23, is a medical student on a stopover at Heathrow while travelling on her way back from South-east Asia to Poland

I am shocked right now. I thought this was the law. I had no idea I’m not obliged to show cashiers my boarding pass. In fact, once I didn’t have my pass when I was buying a bottle of water in a duty-free store, and the cashier refused to serve me. I always thought it was about security. Now I know the real reasons, I won’t be showing my pass again. The stores should be much more transparent.

Usually in airports you are bombarded with information, but I knew nothing about this. It’s not just about money, it’s also about privacy. They have access to all your details – your name, your flight, what you’re buying, everything.

John Gettings, 55, was travelling to Shanghai

I always thought this was a security issue – I just heard about the scam on the radio. It’s awful. They’re taking the money I pay as a taxpayer. If shops were to be entirely open about why they ask to see boarding passes, I’d be more likely to show mine.

Mike Watkins, 50, was travelling to Prague but also often travels outside the EU

I knew absolutely nothing about the scam, and I’d refuse to show my pass if I knew this was all for profit. There’s also just no privacy any more – that’s the kind of world we live in now. It’s a shame, because this profit is going to big corporations, and we’re seeing no benefit.