What is Air Passenger Duty and how can I avoid paying it?

The future of the troubled regional airline Flybe looks inextricably linked with the level of Air Passenger Duty (APD) on aviation within the UK.

The government is reported to be in talks about reducing the present £13 per flight tax burden that applies to most domestic flights. The thinking is that Flybe could cut fares, stimulate demand, fill up its planes and flourish. The move has been deplored by climate-change campaigners.

APD is unique to the UK, and a topic of much controversy. These are the key issues.

APD is the tax that applies to adult (16+) passengers boarding a flight from a UK airport. The rate of Air Passenger Duty depends on the class of travel and the destination of the flight.

The last Conservative chancellor of the 20th century, Kenneth Clarke, invented it in the early 1990s. He told me: “I decided that aviation was in an unusual position in that it's the only form of transport where no one was paying any tax on the fuel that it uses.

“For years and years governments have regarded it as totally normal to impose tax on petrol, diesel fuel and everything used by land and sea. For historic reasons nobody was placing any tax on air fares.

“For me that was an anomaly, not least because people who use aviation tend to be slightly more prosperous than those who use other forms of transport.”

As international aviation agreements generally rule out a tax on jet kerosene, Mr Clarke instead imposed Air Passenger Duty of £5 on each European flight, and £10 on long-haul services. It applied to all passengers above one year of age starting a journey at a UK airport, and took effect in 1994 – just a year before easyJet started flying.

Stelios Haji-Ioannou, founder of the budget airline, said: “I've always been very, very upset about the way the government has decided to tax the aviation industry.”

But Mr Clarke said: “I think his case is made rather weak by the fact that his business has been booming remorselessly.

“If you look back at what's happened to aviation since the time that I introduced the passenger taxes, it has gone on from strength to strength.”

At first the return leg of a UK domestic flight was exempt, but that plan fell foul of European Union competition rules. Since then a return flight within Britain incurs double APD.

Mostly, it has increased – partly because Air Passenger Duty is seen as a perfect tax by politicians. APD is difficult to avoid and easy to collect, because airlines do all the work and send the Treasury a cheque. It can be presented as a “green” initiative, dampening demand for aviation. And many of the people who pay it are foreign visitors and do not vote in the UK.

The next chancellor, Gordon Brown, doubled the tax for business- and first-class seats. (One bizarre loophole, since closed, meant that passengers on the world's most expensive aircraft, Concorde, paid the same as budget airline travellers to Morocco.)

Ahead of the 2015 election, in what was widely seen as a tax bribe, David Cameron cut the highest bands for long-haul travel, which applied disproportionately to travellers to the Caribbean and Indian sub-continent. And since 2016, APD no longer applies to under 16s travelling in basic economy (but is payable for higher classes).

It is not ring-fenced for any particular purpose, eg environmental projects, but goes straight into general taxation.

It largely depends on the (dis-)comfort of the seat.

The “reduced rate” (which in fact is the one most passengers pay) applies to basic economy class.

“Standard rate” (which isn’t actually very standard) is for any class better than basic economy, ie premium economy, business or first class. It also applies if the economy class “seat pitch” (the distance from the front of one seat to the front of the other) is over 40 inches.

“Higher rate” is for “travel in planes of 20 tonnes or more equipped to carry fewer than 19 passengers.”

Much lower rates apply for “Band A” destinations, loosely called Europe. It includes everywhere in Europe as well as the north African nations of Morocco, Algeria, Tunisia and Libya. This band of tax also includes Turkey but not Egypt, which annoys tourism officials in Cairo.

Everywhere else, including Russian territory east of the Urals, is classed as “Band B” – and is subject to much higher rates.

The APD liability depends on your final destination. If you are travelling on a “through ticket,” eg Manchester-Amsterdam-Hong Kong or Birmingham-Frankfurt-Mumbai with less than 24 hours at the transit point, the long-haul rate applies.

For the cheap seats: £13 in Europe, £78 long-haul, though the latter increases to £80 from 1 April 2020.

In posher classes: £26 in Europe, £172 long-haul, though the latter increases to £176 from 1 April 2020.

In a business jet: £78 in Europe, £515 long-haul, though the latter increases to £528 from 1 April 2020.

These are some of the tax-avoiding options.

1. Don’t fly.

2. Be under 16 and travel in basic economy (or under 2 in business class).

3. Fly into the UK on one plane and out within 24 hours on another.

4. Be a pilot or member of cabin crew on duty.

5. Be repatriated after being refused admission to the UK.

6. Fly on a route from a UK airport that is not subject to Air Passenger Duty.

Fly from the Scottish Highlands and Islands Region, which includes Orkney, Shetland, the Western Isles, Oban, Campbeltown and Inverness.

Or travel on a Public Service Obligation (PSO) route, under which the government has appointed an airline to keep a “lifeline” link open. At present they include Heathrow-Newquay, London City-Dundee and Southend-City of Derry as well as many intra-Scotland routes that are exempt anyway.

More widely, you could travel terrestrially to a foreign airport: by sea (or overland from Northern Ireland) to Dublin; by sea to the Netherlands; or on a Eurostar train to Paris, Brussels or Amsterdam.

You could of course fly to Amsterdam, Paris, Dublin or any other European airport and buy a separate ticket from there. But you will assume the risk of a mis-connection, and furthermore because the UK is so competitive for air fares, you may not save money.

A smarter way to do it is to build in a stopover of 24 hours or more at the connecting point. The airline should automatically charge you the lower rate. In effect, since you are saving £65, the chancellor is paying for a short break for you.

Reykjavik and Istanbul are particularly good for North America and Asia/Africa respectively.

If I book a flight and don’t show up for it, who keeps the tax? The airline. While carriers collect APD up to a year in advance, the obligation to pass it on to the government crystallises only when the passenger flies.

In theory you can, but in practice some airlines and travel agents impose fees that are designed to render it pointless. Ryanair, for example, charges £17 for recovery of £13 in Air Passenger Duty.