[CathayLoyalist2]

For some reason HMRC feels another dive into Avios points purchasing is good use of their time and resources

https://www.telegraph.co.uk/business/2023/07/28/hmrc-mounts-tax-raid-british-airways-avios-points/

[ASK1945]

It’s behind a paywall. What does it say?

[CathayLoyalist2]

I have just copied the link into my browser and it opens. It is an article in the DT publihsed on 28th July by Matthew Field if that helps

[ASK1945]

No, it doesn’t. I had already done that, but I can’t get past the first few lines without registering. I am already registered with three newspapers (one a weekly) and I don’t want yet another.

Again, can you please tell us (as a precis in your own words) what it says, otherwise this thread is useless for those without a DT subscription.

[CathayLoyalist2]

I hope this doesn´t upset thed folks at BT

Holidaymakers buying extra British Airways Avios points are at risk of being taxed for the first time as HMRC launches a raid on the popular frequent flyer programme.

Tax officials have told BA’s parent company, IAG, that it is reviewing how VAT is charged on Avios points.

Avios points are currently exempt from the sales tax as they are classified as air miles. Most points are also awarded for either flying with British Airways or spending on a BA-branded credit card.

However, the airline also allows people to purchase additional Avios points directly in order to top up their balance to meet levels needed for flights. Avios points can also be spent on things beyond air travel.

IAG revealed on Friday that HMRC had contacted the company weeks ago to say it believed Avios points should be taxed when they are bought.

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IAG said: “HMRC’s emerging view asserts that charges made by IAG Loyalty are for participating / membership in the Avios scheme and the associated charges are subject to VAT.”

Alan Pearce, a partner at the accountancy Blick Rothenberg, said that the spending of Avios points on items other than flights may have influenced HMRC’s view that “this is an area where the VAT treatment is incorrect”.

It raises the prospect that BA customers who want to top up their Avios balance to reach a level needed to buy a flight may have to pay more, with tax added on top of the price of points.

Dan Neidle, a tax expert at Tax Policy Associates, said an HMRC ruling against the airline company could also “increase the costs for some businesses who award Avios points”.

He added: “That cost would then inevitably be passed on to the consumer.”

British Airways customers currently collect points based on how far they fly with the airline. They can also get Avios rewards for booking hotels or package holidays, while the airline has a deal with American Express that grants fliers one point for every £1 spent. Each point is typically worth between 0.8p and 1p in rewards.

The airline also sells Avios points to consumers directly and offers monthly subscriptions for Avios rewards, which start at £26 per month.

It was not immediately clear whether HMRC planned to claim VAT on all Avios collections, since air miles are not typically VAT-rated. IAG refused to comment further on the investigation and has not provided an estimate for the potential tax bill.

Rob Burgess, the editor of flying website Head For Points, said IAG has been allowing customers to spend the points on rewards other than flights while also offering subscriptions to buy them.

He said: “If IAG is selling you Avios for cash, which you can then spend on wine, then arguably there is no travel angle and no zero rated angle.”

Avios points were introduced in 2011, replacing British Airways’ air miles programme. They can be earned on flights with the UK airline and with IAG’s other carriers, including Aer Lingus and Iberia, or by spending on BA-branded American Express cards.

British Airways has more than 7 million members of its “executive” rewards club who collected more than 100 billion Avios points in 2022. Customers spend £40bn each year on points.

Earlier this month, British Airways changed how fliers collect Avios points, instead rewarding consumers with points for every pound spent, rather than based on the distance they fly.

The business is a major earner for IAG, bringing in revenues of £851m last year and profits of £235m.

IAG said it believed it had “strong arguments to support its VAT accounting” for Avios. It added that any decision from HMRC could be challenged at a tribunal.

The airline group said it was told about HMRC’s new interpretation of VAT charges in recent weeks. It said the taxman had not decided whether this charge would be “retroactive”, meaning it could try to claw back millions of pounds in VAT.

HMRC has launched a series of crackdowns in recent years, targeting ride-hailing company Uber over its VAT payments and launching more investigations into how companies record R&D tax credits.

The taxman has increased the number of inquiries it makes into companies over payments. There has also been a dramatic rise in the number of inheritance tax inquiries.

It has been under pressure to recoup lost tax revenues, after parliament’s spending watchdog estimated that a sharp fall in investigations during the Covid pandemic cost the Exchequer up to £9bn.

Disclosure of the tax investigation came as IAG reported half-year revenues of €13.5bn in the first six months of the year, up from €9.3bn in 2022. It also swung to a €1.2bn operating profit after making a loss in the same period last year.

5 users thanked author for this post.

Johnnyg, Montysaurus, LuganoPirate, DavidSmith2, ASK1945

[ASK1945]

Thanks CL2.

This must be of some concern to many collectors of Avios, but is of no direct concern for me (for now) as I only use Avios for flights and never buy them.

However, having said that, if it does go to a tribunal, then who knows what else might arise? I would not like us to speculate on this forum – as who knows what is being read, by whom and what other ideas they might get …………….😒

2 users thanked author for this post.

Montysaurus, CathayLoyalist2

[Gold-2K]

This link explains it:

NEWS: Avios could be taxed, BA makes record profit and new BA long haul aircraft ordered

[nevereconomy]

I am fine with that as long as they spend the revenue wisely, which I am confident they will.

[ASK1945]

Gold-2K – “Apparently, HMRC is now considering “whether to charge the tax on membership of the Avios programme” IAG said, meaning VAT. The statement by IAG says that “HMRC’s emerging view asserts that charges made by IAG Loyalty are for participating/membership in the Avios scheme and the associated charges are subject to VAT.” is the worrying part.

[Author]

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