A tax dispute you'll never be part of could still change what your Avios are worth. British Airways' parent company IAG is fighting the UK tax authority over roughly €638 million (about $710 million) in value-added tax on the points it issues, and the fallout could reach anyone collecting or redeeming them.
The dispute dates back to March 2018 and turns on a technical question with real consequences. Historically, IAG calculated VAT on Avios based on what members actually redeemed them for — and since most redemptions are flights, which carry a zero VAT rate, little tax was due. The tax authority now argues instead that IAG Loyalty is being paid to run a loyalty programme, meaning every point issued should attract the full 20% VAT, regardless of what the member books later.
IAG is pushing back on two fronts: it says its original treatment relied on an earlier ruling from the same tax authority plus existing case law, and it questions whether the government can apply the new interpretation retrospectively. The company's November 6 financial results identify €516 million of historical payments it hopes to recover if it wins, plus €122 million of later payments as a contingent amount. A tax tribunal hearing is expected during 2026, with a decision in 2027.
Here's why a corporate tax case should matter to anyone with an Avios balance. The points you earn often come from third parties — banks buying Avios to hand out as credit card rewards, for example. If supplying those points suddenly costs 20% more, that cost doesn't sit still. Existing contracts may stop IAG from immediately charging partners more, so shareholders absorb the hit at first. But over time, partners renegotiate: banks can buy fewer points, trim sign-up bonuses, raise card fees, or shift spending to rival rewards programmes.
The end result for members? Fewer points for your spending, weaker bonuses, or redemptions that quietly get more expensive or harder to book. VAT is typically passed along the chain until someone like you pays for it — just never presented as a line marked "tax".
IAG has also flagged payments it doesn't believe it can recover from commercial partners, which forces a wider rethink of partner agreements and, potentially, of what the points themselves are worth. Taxing the creation of rewards makes the same rewards more expensive to offer, and something usually gives: award pricing, carrier charges, or availability.
Until the tribunal rules, nothing changes for members directly — and even a loss wouldn't mean HMRC chasing individual collectors. But if you're sitting on a large Avios balance or choosing a new rewards credit card, this is one to watch through 2026 and 2027. A decision against IAG raises the odds of devaluation-style adjustments creeping into the programme, so it may be sensible not to treat Avios as a long-term savings account in the meantime.
Story via View from the Wing.
