Airport VAT scam: Are high airport rents, rather than greedy retailers, to blame?

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.