The airport VAT scam: Retailers told to come clean after being accused of pocketing millions from discounts on duty-free sales

Some of Britain’s top retailers are facing calls to be more honest with airport customers as they pocket millions of pounds in VAT discounts on duty free items without passing on the savings.

Many stores in airports across the UK now demand that passengers present their boarding cards at checkouts before paying for any goods. But that is not a legal requirement, and instead the information is being used by stores to avoid paying 20 per cent VAT on everything they sell to customers who are travelling outside the European Union.

Research by The Independent suggests the majority of these stores are passing little if any of the savings to customers, and instead are using the tax rebate to boost the profits of their airport franchises.

Consumer rights experts have accused shops of failing to be clear about the practice, and called for customers to be much more wary about so-called duty free purchases.

“I think the problem here is that the retailers are not being straight with the public,” said the consumer affairs expert, Paul Lewis. “They are asking to see passengers’ boarding cards but not telling them that this is so they can make more money by not paying the VAT on what they’re selling. What of course they should be doing is passing on the savings that they make to the passengers who are travelling outside Europe. “The problem is, though, that they have got a captive audience,” said the BBC radio presenter of Money Box Live.

It is a frustrating practice now familiar to millions of holidaymakers and business travellers, but even some personal finance experts admitted they were surprised to learn of why boarding passes are requested at airport store check-outs.

Guy Anker, managing editor of the website Money Saving Expert, said: “I have to say even I didn’t know that the reason that airport stores asked for boarding cards was so that they could avoid paying VAT.

“There is an assumption that duty free means cheaper. But that is not the case. All it means is that the stores themselves are not paying the duty. And they may not be passing that on to consumers – even though they make it out to be cheaper. The important thing here is for consumers to do basic checks online to see if they really are getting value for money.”

One of the biggest offenders appears to be Boots, which has outlets in the vast majority of UK airports. It confirmed that its airport prices are the same as in its London stores – despite being able to avoid paying 20 per cent tax on everything it sells to travellers going outside the EU.

A spokeswoman for the company confirmed that airport store teams are asked to request and scan boarding cards to ensure the “accurate reporting of VAT”, although this was not compulsory.

“We request our customers’ boarding cards so that our VAT accounting is in line with the HMRC’s requirements,” she said.

“The HMRC and airports accept that this is general practice for all retailers located within airport terminals.”

Some of the savings made by the airport stores can be quite significant. Dixons Travel says it makes sure its prices are cheaper than the best deals available from major internet retailers. For example, it charges £53 for an Amazon Kindle compared to its website’s retail price of £53.99. But for passengers travelling outside Europe, Dixons will not have to pay to HMRC the £10.70 that Amazon would need to pay on UK-based purchases.

A spokeswoman for the company said: “Dixons Travel follows the standard practice of non-duty free airport retailers in offering one single, great value price across products.

“We are not duty free; instead, we offer customers a simple, single price and give them our price promise to beat key online competitors.”

Another popular airport franchise that requires boarding cards to be shown is WHSmith. While books and magazines do not attract VAT the company confirmed it did not pay the tax on other products and claimed duel pricing was a “practical impossibility”. A spokeswoman said: “WHSmith policy states that boarding passes should be requested from customers, and not demanded.”

“Any VAT relief associated with the identification of customers travelling outside of the EU is reported in accordance with UK legislation, and any relief obtained is reflected in our single price and extensive promotional offers provided to all of our customers.”

But not all stores take this attitude. Harrods, for example, which has stores in all five Heathrow terminals, sells all its products VAT free.

A spokesman for HMRC confirmed that there was no need for stores to pay VAT on goods sold to passengers leaving the UK.

“Duty free shops may treat the sale of goods to passengers intending to take them to non-EU destinations as zero rated exports, provided they retain suitable evidence such as by scanning the boarding card,” he 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.”

He added: “HMRC cannot comment on the pricing policies of individual retailers.”