Avios Group’s VAT woes continue – £557 million paid out but an appeal is coming

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• JDB says:

  3 Mar3 March 04:02

  For what it’s worth, IAG is not only appealing to the FTT, but has also applied to the High Court for Judicial Review (of its legitimate expectation to be able to rely on HMRC’s previous guidance) but hasn’t yet been granted leave.

• Ian says:

  3 Mar3 March 05:19

  Hope they paid via a credit card to earn Avios!

  • cranzle says:

    3 Mar3 March 06:41

    Corporation tax deductions on point is well and truly on HMRC’s website. There are fraudulent schemes being promoted that have caught their attention.

    It won’t last.

• Ivan says:

  3 Mar3 March 08:18

  A few points worth adding:

  a) This is likely to take years to resolve as whoever loses at the First Tier Tribunal can seek to appeal to the Upper Tribunal, and then to the Court of Appeal and Supreme Court.

  b) As your article says the VAT due by Avios Group can be offset by an input VAT claim by BA. Where this gets messy are the charges to third parties, specifically American Express. Unless Avios Group’s contracts explicitly say its charges for the sale of Avios are exclusive of any VAT that may become chargeable, it cannot retrospectively add VAT on top. Unlike BA, financial institutions largely cannot recover VAT, so this is something Amex’s lawyers would not have allowed. Avios Group is losing a significant margin on the sale of Avios to Amex and others.

  c) This is not the first time there has been litigation with HMRC over loyalty schemes and VAT. There was a case involving the Tesco Clubcard over 20 years ago. HMRC’s approach to loyalty schemes was thought to be clear but given these schemes have now evolved into highly profitable businesses in their own right, it’s clearly piqued HMRC”s interest.

  d) As there is a 4 year cap on retrospective VAT assessments, HMRC are likely to be looking at other operators with similar set ups to IAG, notably Virgin Red, so assessment periods don’t fall out of time pending the Avios litigation.

  • Rob says:

    3 Mar3 March 08:29

    Pretty sure the last set of Virgin Red accounts talked of an HMRC probe.

  • Bagoly says:

    3 Mar3 March 08:34

    c) “evolved into highly profitable businesses”
    Only because internal pricing is set to make them look profitable.
    I’m not sure whether reducing the internal pricing would remove the issue – which entity buys what that generated the £215M of input tax?

    • memesweeper says:

      3 Mar3 March 17:36

      sales to Finnair and Qatar are not internal, nor Amex or Barclays …

  • ken says:

    3 Mar3 March 09:15

    I think HMRC issued protective notices to IAGL so that any periods from Jan 2018 onwards are covered.
    I’d be surprised if they hadn’t issued same to other groups selling “air miles”.

  • Sharka says:

    3 Mar3 March 10:20

    Re your point (a), you cannot appeal just because you feel like it, or do not like the outcome: there needs, broadly, to be an error of law or a finding of fact so unreasonable that no tribunal, properly directing its mind to the issue, could find it (and there is very broad discretion offered in findings of fact following full trial).

• Mikeact says:

  3 Mar3 March 08:32

  Are these comments only related to Avios issued in the UK, or the wider world of Avios ?

  • ken says:

    3 Mar3 March 12:14

    Normally the place of supply is where the supplying business is based and Avios Group (AGL) Ltd is based in the UK.

    As the offer to businesses is that Avios can be redeemed on Hotels, car hire & wine alongside flights – it gets increasingly hard to claim that they should not be standard rated.

• Barrel for Scraping says:

  3 Mar3 March 09:40

  I was talking to one of the BA people who’s often roaming the Concorde Room on Friday and they said there would be an announcement due out this week which would tie up the loose ends before BA Club launches next months. Nothing specific was said apart from they’ve made some tweaks based on both the feedback on the initial BA proposals and feedback on Iberia Plus.

  So I woke up this morning hoping for the announcement. Is it planned for today? Has it been postponed? Will we finally learn how Amex will work with regards to Tier Points?

  • Richie says:

    3 Mar3 March 11:04

    They love getting it right first time and giving more than 14 weeks notice, so so so very reasonable.

  • sigma421 says:

    3 Mar3 March 11:06

    Interesting. Presumably this is further tweaks after the changes that were made in early February?

    • Barrel for Scraping says:

      3 Mar3 March 11:35

      I hope so, although it could change at any time. Even if BA told people there was an update due this week it could change for many reasons. It might even have been a way to say to be go away and stop asking questions, all will be revealed soon.

• Garethgerry says:

  3 Mar3 March 09:58

  What basis do they pay VAT on when they issue avios, given avios are valued at 0.00001p or something silly until they are redeemed.

  20 million avios an hour issued at a redemption value of £1.8 billion to 3billion a year , so it’s less than 20% of that . (Less of course if only UK issued).

  Just wondering if anyone had better insight

  • ken says:

    3 Mar3 March 11:54

    It’s the selling of them that’s the issue, not the incedental awarding of them for taking a flight.

    And the basis is that they sell them for up to 2.5p per Avios.

    You can’t just say to the taxman, ‘yeah but they have no value’.

    The ‘supply’ is what they charge for them.

    • Garethgerry says:

      3 Mar3 March 13:51

      Thank you, yes it makes some sense.

      But if Avios were only redeemable on flights and they treated them as an avios flight savings scheme, then they’d be zero rated like flights.

      • Richie says:

        3 Mar3 March 13:58

        Airmiles were very straightforward really.

      • Rob says:

        3 Mar3 March 15:44

        Probably more likely could only be earned on flights.

        Avios already pays VAT on redemptions where due – obviously, as AGL pays reward suppliers in cash.

• RussellH says:

  3 Mar3 March 10:33

  While flights are zero rated, BA Holidays will be subject to the Tour Operators Margin Scheme (TOMS).
  While the flight element can be excluded from the calculation Rob’s last article implied that the amount nominally charged for IT flights will be small, which in turn implies a bigger margin.
  And if the avios used to pay for those flights are nominally valued at 0.00001p, then the taxable margin is going to be larger.
  Must be fun for accountants; nopt at all sure about the rest of us!

• RC says:

  3 Mar3 March 11:33

  A further Avios devaluation (on dynamic priced redemptions) will help any transfer pricing issues, and transparency of the Avios value for flights.
  It’s only a matter of time…

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