British Airways parent company IAG faces a €638 million tax dispute with the UK government over how its Avios loyalty program should have been taxed since March 2018. The tax authority claims 20% value added tax applies when Avios are issued, while IAG historically treated most redemptions as zero-rated because members typically used points for flights.
IAG expects a tax tribunal hearing during the remainder of 2026 and a decision in 2027. The company is challenging both the assessment and whether the government can retroactively reverse its prior treatment.
The dispute creates real risks for Avios members. If IAG ultimately pays the tax, the airline could respond by issuing fewer points per purchase, reducing sign-up bonuses, raising redemption prices, or making award availability less attractive. Partners like credit card companies that buy Avios to reward customers may also cut back on points offerings or shift to different rewards programs.
The tax authority argues that IAG Loyalty's core business is developing, administering and maintaining the loyalty program itself, making the issuance of Avios subject to 20% tax regardless of what members eventually redeem. IAG contends its treatment relied on an earlier ruling from the same tax authority and existing case law.