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Avios could be taxed
Just when you think that in a time of record tax bills, things couldn’t get any worse, they come after your Avios! In an article in the Telegraph this afternoon, HMRC has revealed to IAG, who own British Airways and Avios, that it is looking at how VAT is charged on Avios points when they are collected and spent.
The article is quite vague about exactly what they would be going after, but it seems to be about the zero rate of VAT on travel and the fact that originally, Avios could only be redeemed on flights. However, Avios can now be spent on other things, such as wine, which are not exempt from VAT. Plus you can also buy subscriptions as well.
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.”
What specific part of the Avios process would be subject to VAT is not clear – whether it is the fees on redemption flights or something else needs to be clarified. IAG is trying to argue against it, but if it goes ahead, Avios collectors will feel the pain somewhere, that’s for sure!
There was also some interesting information in the briefing today about Avios. During the first half of the year, IAG issued 66.4 billion Avios, a 14% increase from the first half of 2022. Profit from Avios was up 11% versus the first half of 2022 at £141 million and 64% higher than the first half of 2019.
BA and IAG make record profits for first half of 2023
IAG, owner of BA, Iberia and Aer Lingus, has reported operating profits of €1.3bn (£1.1bn). In the same period last year it had posted a loss of €446m.
This was down to capacity being back to 94% of pre-pandemic levels in the first half of the year and higher fares than previously with fares were up by about 9.5%. Passenger unit revenue for the first six months was 18.4% higher than the same period in 2022, with strong leisure traffic recovery and business traffic recovering more slowly. The premium leisure market continued to perform very well. I’m not surprised by this given the large Club Europe cabins I have been seeing.
Luis Gallego, International Airlines Group’s CEO, said:
“Our strong profits since the start of the year are helping to fund investment for our customers, and to improve our balance sheet by reducing debt. We are aiming to be back to pre-pandemic capacity at the end of this year.“These results are thanks to a strong performance from all companies across the Group, and we would like to thank our teams for their hard work during the year so far. Customer demand remains strong across the Group, particularly for leisure travel, with around 80% of passenger revenue for the third quarter already booked.”
It also revealed in the report that British Airways is continuing to focus on its the North Atlantic markets, as well as reopening its key Asian routes. Whether this refers to the routes they have already opened or the ones that remain closed is not clear. Prior to Covid BA had Seoul, Kuala Lumpur and Bangkok flights which have not resumed.
British Airways and Iberia order more long-haul aircraft
One of the main problems for BA is a lack of aircraft after retiring the B747s during COVID-19 and delays in aircraft deliveries. In the IAG results statement, they also clarified their fleet plans. BA is not expected to return to pre-pandemic levels capacity until 2025 for long-haul and premium capacity by 2026.
Six new Boeing 787-10 aircraft, which are currently on option, will be converted into firm orders. These, of course, will have the new Club Suites and 8 First seats. Only 55% of British Airways’ Heathrow long-haul fleet has the new Club Suite currently.
BA has also taken out new options on a further six B787-10s. The new aircraft on firm order will be delivered during 2025 and 2026.
Luis Gallego, IAG chief executive, said: “These latest generation aircraft will contribute to restoring capacity to pre-pandemic levels. They will be among the most fuel-efficient aircraft in our long-haul fleet and will help towards our commitment to achieve net zero carbon emissions by 2050.”
IAG is expecting to take delivery of 30 aircraft in total this year with six long-haul aircraft for BA and 19 short-haul aircraft spread across BA, Iberia, Level, Aer Lingus and Vueling.
The company also converted 10 A320neo options to firm deliveries from 2028 as replacement aircraft for the shorthaul network.
13 comments
TAXED.TO.DEATH
Why can the government just stop taxing people. If I have earned avios I have earned them via whatever means that may be and it is nothing to do with the government at all . They are also wrong to say that there is a cost as the scheme is free to join like many others no other loyalty schemes anywhere are taxed so it is nonsense . No other country is even considering such madness and BA will lose customers to other airlines if this goes ahead which there is no reason for it to .It is clear this is a pie in the sky thought that has no real justification to it. Another home goal by the idiots of the HMRC we should be promoting BA as a flag carrier, not causing it issues for zero reason. No other loyalty schemes are being taxed what a stupid decision without any evidence or need for it . Stop nannying people and simplify tax rather than come up with jobsworth ideas nobody wants. the points have been earned end of and the person has paid for them it is no concern to the government who should stop trying to meddle in things like this. The vast majority redeem on flights and products with BA, avios on wine etc is very poor value and is likely to include some kind of taxes. sack these killjoys. you can only spend avios on flights or associated products which if the points have been earned is up to no one but those who earn them and should not be taxed at all. we do not need more taxing fix the major issues instead of robbing us blind more for something people earn and therefore have the right to spend never heard so much utter rubbish it does not stand up to 5 mins of thinking by anyone with a brain. all avios are paid for however that is and that is what matters
The problem is that you can spend them on lots of things other than flights and you can now buy them directly so it does start to look like they are an equivalent method of payment.
You get taxed on all income you earn so I’m not sure your point about the unfairness of being taxed on what you’ve earns is valid.
I’d put the blame more at IAG for pushing the boundaries of Avios to the limits
The vast majority aka 99% spend them on flights alone . They are not a form of payment at all as you buy avios which can be redeemed on the same things irrespective of how they are earned . It is clear this is purely some jobsworths idea that is stupid . Avios are not income though are they they are earned when flying mainly . Redemptions requiring tax have it already so why don’t the government do one and stop trying to nanny everything . IAG have done nothing wrong at all and have run it for years without issue you can buy avios for years . It is clearly some rubbish it is not a form of payment either as I say you have to pay to earn avios and some ways of doing so are taxed already thereby there is zero issue or reason why anything should change . It is not up to the government to dictate to businesses who are not doing anything wrong
I can categorically say someone in HMRC is having a laugh. After you have taxed our salaries and our shopping experience, you want to tax our avios…….you might as well just ask people to give you the tickets and you take the flight and keep the avios. For a country in excess debts, BA is making profits of 1.1billion trading profits….HMRC why not tax BA rather than taxing the avios of the passengers.
It’s too early for all this annoying speculation. Let us breathe…….HMRC!
The HMRC tax issue – I have often wondered why Airline staff from all airlines are not taxed on the benefit of subsidised fares plus the virtual automatic upgrade, which should be included, to Business of First class. On most long haul flights, there is always staff as they chat and make themselves known to the crew. This is stopping the paying public from getting any available upgrades. Also, on BA, the subsidised fare continues when certain staff retire and it covers them with the extended family. Interesting one for you to develop into a stoey.
It might be argued that the last three years have proven BA are not the most benevolent company when it comes to their employees, so I can’t imagine them reserving seats for staff and turning down income unless there’s a very good reason for it.
Many people get benefits with their jobs – some better than others – and I’m sure the taxman keeps an eye on them all.
Reassure me that we’re not turning into a society where we begrudge other’s good fortune. I’d never consider demanding that a barista, who might get a couple of free coffees a shift, pays the lost VAT on their ‘benefit’ just because I have to pay full price for mine, so why should I be bothered about an airline employee getting a good deal and sitting next to me in club? (Obviously, as a Gold card member, if they got their first meal choice and I didn’t get mine there would be h*ll to pay! 🤣🤣🤣)
Do other staff get taxed in their jobs for the benefits I think not ? All airlines offer travel discounts to staff . Nobody is being stopped from getting a upgrade no airlines not practically offer free upgrades . It is ridiculous people are jealous of the staff whom without they would go nowhere and they are not taking any seats or upgrades away . They work hard and have earned the benefits
Those of us who work hard, bring investment into this country, support our national carrier will now be punished for doing so.
BA already charge eye watering carrier fees and often more avios for similar routes with other carriers. This makes them even less attractive to travel with.
I will be looking for an alternative loyalty program if this goes ahead, as I suspect many will.
HMRC is not the first to try but one of the reason many tax authorities struggle was because an avios or point is earned per mile travelled. Switching to earning based values like BA is doing results in it moving from a travel reward for distance travelled to a financial reward for which the value can be easily calculated and tax. I have just looked at my ticket to SOF and noted that I have to pay VAT on the lounge access now because the airfare has no VAT! Finally to correct the comment above “ Do other staff get taxed in their jobs for the benefits I think not”, actually we have to pay tax on any of our benefits e.g reduced interest rate on a mortgage when working for a bank so why don’t airline staff have to tax their staff? Some countries airlines/railway perks where excluded from tax they were state run companies and continue to have the benefit after privatisation.
My occupation doesn’t involve any complex taxation but why is HMRC thinking of investigating Avios the obvious question to ask is, what about other schemes e.g. Virgin, Tesco, Nectar etc isn’t the premise is you collect points then spend it on something. Is there VAT for membership with Nectar for example? No one ever mentioned that. I just find the whole thing nonsensical, HMRC would be better spending their prescious limited resoruces actually people who are not paying the right amount of tax or being contraversial here big companies who seems to be in the UK but appears to be paying very little tax.
Totally agree with you. I don’t understand why they are looking at Avios specifically since more schemes allow you to earn and redeem on all sorts of options other than flights.
As a retired tax and VAT specialist….
Benefits-in-kind are taxed on to the cost to the employer of providing them. Avios etc are free to the employer so no taxable benefit arises. The cost of free/discounted employee travel on planes, buses and trains is really only the fuel for a slightly heavier human cargo. (Loss of income is not a ‘cost’.)
There would be a defensible logic in taxing Avios arising on flights paid for by an employer but used for personal flights or personal expenditure. It would be hugely complicated to calculate – but that never prevented Gordon Brown’s crazy ideas. And it would appeal to the Turning Right public, who are the majority.
I can see a VAT loss where Vatable personal goods are paid for by points acquired on a Zero Rated purchase. But there’s an international complication here. Place of Supply is important in VAT. Points used in Tesco, say are simple. Points used in Duty Free in Abu Dhabi are not.
I’m glad I’m retired.
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