The UK news is currently awash with stories of people refusing to show boarding cards at airport retailers, after finding that many reclaim their VAT and don’t pass this onto their customers. Dixons, WHSmiths and Boots are just three companies named.

ADVERTISEMENT

Here’s a couple of example comments from people on Boots’ Facebook page 1

Crooked, VAT tax dodging liars.

GIVE US OUR DISCOUNT. ROBBERS !!!!

This company is crooked with no values or ethics.

But is it really as simple as greedy companies pocketing the VAT for their own benefit?

What’s This All About?

In the UK you pay a “value added tax” to certain products. Whether an item has VAT or not depends on whether they’re deemed “luxury” items or otherwise. So bread and milk doesn’t, iPads do (famously, the makers of Jaffa Cakes went to court so that they could be re-allocated and avoid having to pay VAT). There are even different levels of VAT, but most are aware of the higher end 20% rate.

If you own a shop at an airport it can either be “airside” (most people will know this as the “duty free 2 area”) or “landside”. If you buy something from an airside store VAT doesn’t apply if you’re flying outside of Europe. However, retailers can’t just simply not pay it, as it’s payable but has to be refunded by HMRC.

Customers themselves can do this (using the VAT number on the receipt and providing the relevant evidence to HMRC) but, because pretty much no-one did, retailers did it themselves.

What’s happened, although it’s been going on for many, many years, is that the media have realised that retailers are claiming the VAT back for themselves but haven’t been reducing the prices accordingly in the stores, seemingly pocketing the VAT rebate for themselves. For some odd reason too, they’re only highlighting the retailers that are getting rebates and not those who aren’t because, after all, without doing this they can’t reduce their shelf prices either.

What Exactly are the Retailers Doing?

Customers, shopping at an airside store, are asked for their boarding card. They don’t have to give this but, if they do, the retailer can check their flight and, if valid, can use this to claim the VAT back from HMRC.

However, getting a regularly updated list of which flights are going to which destination is not something Dixons, or whoever, is going to have to hand. Instead they end up buying the data from third party companies at cost (and this, at its cheapest, is usually a 5 figure sum). There’s additional costs here – updating their systems, just for some airport stores, to request, even scan, boarding card details, process these transactions and send them back. Then there’s the HMRC claim process, which they’ll need people and/or systems in place to do.

Do the retailers make a profit from all this? Of course they do, otherwise they wouldn’t do it, but it’s not as much as you’d expect, taking into account the sub-set of transactions that can be claimed against and the costs of setting this up.

The biggest expense, however, is that it costs a lot more to run a store in an airport than elsewhere due to massive rents charged by the airports. Normally a retailer would have to push that cost onto the products, instead they’re charging the same but using the VAT money to subsidise this.

And there’s one final thing worth considering at this point – retailers are not guaranteed to get their VAT rebate. Naturally, they submit their claims in batches. If a technical issue occurs, for example, and they accidentally try and claim for some flights that were in the EU (it happens as flight numbers are often re-assigned to different destinations), then HMRC will happily reject the entire batch of requests.

What Do Customers Want?

Not to show their boarding card and have their VAT discounted. As you can’t get rid of both (they need the boarding card to be able to prove the VAT is discountable to HMRC) let’s assume that the retailers give the discount. How would they advertise this to the customer?

Show us your boarding card, and if you’re on an a flight to a non-EU destination and it’s a VAT line then you’ll get up to 20% off (depending on the VAT rate)

It’s hardly snappy and likely to just cause confusion as people generally don’t know what items have VAT on them or not, and what level of VAT it is.

Of course, compensating the customers would also mean further system changes to extract VAT costs (and point-of-sale system in stores generally don’t know which items have VAT on them or not, simply because they don’t need to) and remove from the transaction.

A new article on the BBC news site has an interesting quote…

WH Smith said it would be impossible to have a pricing system which distinguished between travellers to EU and non-EU destinations.

But one man, who said he was a former WH Smith manager, told the BBC it would be simple to apply a discount for people showing boarding cards for non-EU countries.

A “WH Smith manager”. Manager of what? Magazines at their Watford branch? Unless he’s an IT manager, and one that is slightly more literate than most IT managers, how can be make this claim? Let me tell you straight – it’s not that simple.

What Have The Retailers Done Wrong?

There are some examples of retailers refusing to serve people unless they show a boarding card, often stating “it’s the law”. If this happens then you should walk out and not buy as this is incorrect. But are companies advising their staff to do this or are some staff simply mis-informed? It would be a brave company that did the former and I would strongly suggest that the actions of a few rubbish staff should not mean that you decide to boycott and entire retailer as a result.

As for claiming the money back for themselves, no, this is perfectly legal and HMRC have worked with retailers for many years to allow them to do this.

David Guake, Government Treasury Minister, however, said…

Odd that the person responsible for HMRC doesn’t seem to know that they’ve been working with retailers on this quite happily for many years. It’s almost as if he’s just jumping on a media bandwagon for political point scoring.

My second favourite quote was…

Yes, that’s the same MoneySavingExpert website that regularly informs people how to fiddle the most money out of retailers. Ironic or two-faced?

What’s Going to Happen?

Assuming the retailers bow to pressure and somehow refund the customer their 20%, with all those costs of buying flight data, modifying their systems and requesting the VAT back, as well as the added expense of renting space at an airport, they’ll be out of pocket. It’s likely too that the retailers will offer a blanket 20% discount too (rather than just for the VATable items) due to the expense of separating out the VAT items.

All of this sounds just want the public want, yes? Except, the retailers will be forced to compensate for their loss by pushing up prices in the airport stores.

The end result – nobody is any better off.

Only once have I ever (and it’s unlikely to ever happen again) agreed with Katie Hopkins…

If you liked this, you should try The Big Tech Question, which includes articles written by myself.

The Big Tech Question delivers straight answers to the biggest questions in tech. And some questions nobody really wanted the answers to…
  1. the other retailers aren’t receiving the abuse for some reason[]
  2. although it’s worth pointing out that the VAT rebate is not the same thing as “duty free” and shouldn’t be confused[]