WH Smith may have banked around £50m over the last five years by failing to hand over VAT discounts to passengers passing through its airport stores.
The revelation comes as the retailer’s reputation hit a near two-year low and pressure mounts on the newsagent and other shops with airport branches to offer cheaper prices to customers flying outside the EU.
Last week the company updated the City on its performance for the first time since The Independent sparked a passenger backlash by revealing that airport retailers pocket the VAT on goods they sell to customers travelling outside the EU – who should not have to pay the sales tax.
Executives declined to say how much the “boarding pass revolt” had affected takings. But analysts believe around 15 per cent of WH Smith’s annual sales come from its airport stores, with half of that liable for VAT – meaning almost £25m of the sales tax will be collected by the company this year from its travel locations.
Experts estimate that around 40 per cent of all passengers flying from UK airports are travelling outside the EU, meaning WH Smith could be pocketing around an extra £10m this year alone by not having to pass the cash on to HMRC. Over five years, the total windfall could be £50m.
Retail analysts suggested the passenger revolt would probably cost WH Smith a fairly small sum – a couple of million pounds at most – but warned any future legalisation to close the VAT loophole could have an impact.
Tony Shiret, of the investment bank BESI, said: “So far it appears to have seen minimal impact. That is not to say that this will not become more of an issue but it is likely to be a very low single-digit millions type of issue at worst. VAT is likely to linger as an irritant issue.”
Customers’ perceptions of the company have fallen to lows not seen since October 2013, according to YouGov. BrandIndex, which measures the reputations of businesses, found that WH Smith had taken the brunt of negative sentiment.
Sarah Murphy, YouGov BrandIndex UK director, said: “Of the retailers caught up in the scandal that we monitor, it is WH Smith that has suffered the bigger hit among the public. Its Buzz score – measuring whether people have heard good or bad news about the brand – has decreased significantly. Boots, meanwhile, has seen a smaller decline.
WH Smith has disputed The Independent’s analysis, calling the figures “wildly inaccurate’’.