Minister weighs in on duty free airport VAT - and it's about tax dodging not security

Now even the government is saying that airport stores should pass on tax savings to punters flying to non-EU destinations. But should they? They aren't breaking the law.

by Andrew Saunders
Last Updated: 22 Sep 2015

The Financial Secretary to the Treasury, David Gauke, says that airport stores should not keep the VAT on sales made to customers travelling beyond the EU, adding that the tax exemption was not supposed to provide ‘a windfall gain for shops’ but to reduce prices for shoppers.

Now normally there is nothing more likely to raise MT’s hackles than the sound of government getting all sanctimonious with business. Especially when, as in this case, the comments seem intended to curry favour with the public and generate positive headlines as much as they do to address the matter in hand.

But for all Gauke’s opportunism, on this occasion he has a point. If you have ever wondered why airport shops ask to see your boarding card before you pay, then wonder no more. It is because they can keep the ‘VAT’ portion of the sticker price on items sold to people travelling outside the EU.

Yes, it’s all about filthy lucre and nothing whatsoever to do with national security. (Despite claims from some shop staff that managers have told them to tell customers that showing their boarding cards is a security requirement). And with VAT at 20% the sums involved probably add up to millions.

The revelations have led to quite a backlash from travellers, many of whom are not happy, either at being duped into showing their boarding cards or at being denied their £1 off a £6 bottle of sun cream.

The age old temptation these stores have succumbed to is that of following the letter rather than the spirit of the law. The loophole that lets them do it arises from the fact that since EU-wide regulations arrived in the mid 90s, the old idea of ‘Duty Free’ only really applies within the EU to a small selection of goods - tobacco and some alcohol. Everything else is taxed uniformly, and thus in a great many cases priced uniformly too.

But if someone is travelling beyond the EU and the retailers can prove it by sight of their boarding cards, they can keep the 20% of the price that would have been attributable to VAT. Sneaky, yes. Illegal? Not in the slightest.

Firms involved reportedly include big names like WH Smith, Dixons and Boots to name but a few. And having been caught out at something they clearly didn’t want the public to get wind of, some of the official responses have been pretty dimwitted too. WH Smith, for example, has tried to claim that it would be impossible for its pricing structure to cope with different levels of VAT for different destinations. But as there are several other airport retailers who do exactly this already, that excuse is hard to swallow.

Boots has done a bit better, saying that it will not require passengers to show their boarding cards in future if they don’t wish to. But then they don’t really have much choice, as there is no legal requirement on passengers to show their cards anway. When you are in a VAT-shaped hole, stop digging…

But rather than changing the law - a pretty blunt instrument at the best of times - it might be best to harness the power of the collective to tackle this problem. As Money Saving Expert founder Martin Lewis has pointed out, offending stores can be forced into doing the right thing. ‘People withholding their boarding passes will force companies to eventually take action’ he said. ‘You’re not protecting the sanctity of Britain by giving them your boarding pass, you’re enabling a commercial company to get a reduction on its tax bill.’

So next time you are in an airport shopping centre and an assistant asks to see your boarding card, remember that you do have a choice. Besides, voting with your wallet, purse or contactless payment smartphone is also much more likely to produce results, quickly, than waiting for a government minister to act...

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