Judges at the High Court issued the ruling rejecting the claims made by Heathrow Airport and group appellants, that the Treasury's announcement of the revised policy was unfair and it had failed to conduct ‘proper and detailed economic analysis’ before making the decision.

In September 2020, the Treasury announced the end of two schemes providing VAT-free shopping, which meant that tax free sales at UK airports were withdrawn for all outbound passengers from 1 January on goods other than liquor and tobacco.

That included the all-important fragrances and cosmetics category, as well as fashion, luxury, and consumer technology.

In November 2020, London Heathrow Airport, Swiss-based travel retailer Dufry, and tax refund specialist Global Blue mounted a joint legal challenge against the Treasury on the decision to remove the statutory VAT RES scheme and the ESC 9.1. This was an extra-statutory concession, creating tax exemptions which differed depending upon whether sales were to the EU or to the rest of the world.

Heathrow Airport warned that the loss of tax free sales to international visitors would change its pricing proposition and put £200m of annual revenues at risk, as well as costing around 19,000 jobs by ending ESC 9.1 with between 27,000 and 41,000 jobs lost by stopping the RES.

Heathrow Airport raised the issue of the constitutional power of the Revenue Commissioners in the matter and argued that the government had used the General Agreement on Tariffs and Trade (1964) to ‘artificially and wrongly constrain the range of possible solutions and ignored alternatives which were favourable, or at least less damaging’, to the claimants’ businesses.

They also said that the government did not factor in the new EU Trade and Cooperation Agreement into its calculations and disputed the approach taken by government to evaluate the economic consequences of the decision.

In a summary of their findings, Lord Justice Green and Mrs Justice Whipple ‘upheld the government’s view as to the limits upon the power of the Commissioners to use extra-statutory concessions to create exemptions from VAT’.

The court agreed that the concessions ‘were outside of these powers and that if tax exemptions were to be retained or extended in the future this would have required legislation. The government did not therefore make any error in the analysis of the Commissioner’s powers’.

The judges also upheld the government’s argument on the General Agreement on Tariffs and Trade and added that the EU trade deal should not have entered the analysis.

The court stated: ‘When the decision to abolish the tax exemptions was taken it was perfectly rational for the government not to take into account a free trade agreement that was not yet in force and which was still in negotiation and which might never come into being. It was equally a matter for the government not to decide to revisit its decision to abolish the tax schemes once the EU Trade and Cooperation Agreement was agreed and came into force’.

The court rejected the claimants’ statements on the approach to evidence collection, saying that it was ‘justified and rational in the circumstance’ and the court concluded that ‘none of the claimants’ grounds succeed and accordingly the appeal seeking permission to seek judicial review, the claim for judicial review and all associated applications, fail’.

Reacting to the decision on Friday, UK Travel Retail Forum chair Francois Bourienne said: ‘When the government took the decision to remove tax free shopping last year, the UK Travel Retail Forum told the Exchequer Secretary that the impact on airside retailers would be profound. Only a few weeks ago Dixons announced the closure of all its airport shops up and down the country.

‘There is no escaping the clear negative consequences stemming from a completely avoidable decision by Treasury. Airports will not be able to replace this lost revenue immediately and will now find it harder to invest in infrastructure, route development, and the recovery from Covid-19.

‘UK Travel Retail Forum continues to urge the government to reconsider its position to avoid causing further damage to UK businesses and UK livelihoods.’

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