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Airport shops could be forced to give VAT discounts to passengers travelling outside the European Union, following the launch of a government inquiry.

The Treasury said that the "extensive" review would make sure that shoppers got the discounts they are entitled to.

Tax-free shops should not charge VAT, if passengers are going outside the EU.

In August it was revealed that some airside retailers were not always passing VAT savings on to customers, but were keeping the money instead.

The Treasury said some shops were keeping as much as half the money they should be giving to consumers.

"VAT relief at airports is intended to cut prices for those travellers - not be a windfall gain for shops," said Chancellor George Osborne.

"But many people could be paying over the odds for their purchases because the government's VAT concession isn't passed on. This is simply unacceptable," he said.

Delays

At the moment airport retailers are not legally obliged to provide a VAT discount, so it would need a change in the law to make them do so.

Some retailers have claimed it would be too difficult to introduce dual-pricing for EU and non-EU travellers - and that such a requirement would lead to delays for passengers.

WH Smith, one of the shops originally criticised, said it would co-operate with the inquiry.

Boots, which also came in for criticism, has already announced a review of its own policy.

"Since taking our decision in August 2015 to no longer ask customers to show us their boarding passes we have been continuing with our strategic review and, working together with the Airport Authorities, we are nearing conclusion," the retailer said.

"We will participate with the government review as we receive further details," it added.

Airport shopping: What are the rules?

Who is entitled to VAT savings?

Anyone travelling outside the 28 countries of the European Union (EU). Travellers within the EU or the UK have to pay existing rates of duty and VAT.

Do you have to show a boarding pass?

If you are buying cigarettes or alcohol duty free shop, you are legally obliged to show your boarding pass, to prove you are travelling outside the EU. If you are buying other goods - say books, snacks or cosmetics - you are still obliged to show your pass if these are being sold in a duty free shop. You are not if these goods are from a general retailer such as Boots or WH Smith.

Read more here

Goods which normally carry VAT at 20%, like bottles of water, or sunscreen, should carry a significant price reduction.

A bottle of sunscreen, which normally retails at £6, should cost £5 once the VAT is deducted.

Other items, such as books and newspapers do not carry VAT in the first place.

HM Revenue and Customs (HMRC) will carry out the review, and is expected to report back early in 2016.

It will also examine the separate issue of airport excise duty.

Duty-free shops which sell alcohol and tobacco operate under different rules to tax-free shops.