Under UK VAT rules, exports to non-EU countries are zero-rated, and as a result passengers should not be charged the current 20% VAT rate when travelling to non-EU member states.

The pricing of products is a purely commercial reason for retailers and is not governed by UK tax law.

An HMRC spokesperson told Accountancy: 'As a tax authority, HMRC is concerned whether VAT has been paid correctly. If an airside shop is selling something like a standard product and if the buyer is travelling within the EU, the usual VAT standards apply. If a person is travelling outside the EU, the product is zero rated. It is up to the retailer to provide HMRC with evidence that the person is travelling outside the EU and therefore the product is sold at zero VAT rate. From HMRC's point of view we have no control over pricing as long as they pay the correct VAT.'

Some retailers are selling products for the same price, regardless of whether they charge VAT, with claims that operating a dual pricing system in UK airports would be costly and complex to operate.

Duty free shops, such as World Duty Free, are designated as an ‘export shop’ and are allowed to sell alcohol and tobacco, sales of which are tightly regulated by HMRC and have to account for sales, which are shown in dual pricing to reflect zero-rating for non-EU travel. However, other retailers fall outside these rules.

An export shop can only be sited at a customs and excise designated port or airport and is usually located in the departure lounge after security controls.

Other retailers are classified as tax-free shops under HMRC guidance and rules. Although a tax-free shop is normally sited within a port or airport after security controls, it is not an excise warehouse and cannot stock or sell excise goods. However, it can sell zero-rated VAT products for export to entitled passengers (travelling to non-EU destinations).

Retailers do not need a tax free shop authorisation but if they sell zero-rated products they have to contact HMRC to discuss payment arrangements under the Special VAT Retail Schemes. VAT Notice 727 explains the accounting procedures for tax-free shops, including the separate VAT accounting arrangements).

Financial secretary to the Treasury, David Gauke, has called for an end to the practice, saying that ‘VAT relief at airports is intended to reduce prices for travellers not as a windfall gain for shops. While many retailers do pass this saving on to customers it is disappointing that some are choosing not to. We urge all airside retailers to use this relief for the benefit of their customers.’

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