We have a significant amount of experience in advising a wide range of businesses in the travel sector, including major tour operators, high street travel agents, business travel agents, and online travel businesses. We can help you with a wide range of Travel Industry VAT issues, including:
- VAT efficient structuring (use of purchasing hubs, wholesale structures)
- Implementing transport company arrangements
- Advice on agent versus principal status
- VAT liability of transaction fees and commissions
- VAT refunds on travel agent funded discounts
- TOMS calculations
- In-house supplies
- VAT liability of credit card charges/booking fees
- Exempt revenue streams (eg sale of travel insurance, forex)
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Travel industry VAT rules are complex, and the rules differ depending on the capacity in which the business is acting. It is now commonplace for several different revenue streams to be earned from a single customer transaction as businesses seek to replace commission income – this increases the Travel Industry VAT complexity.
The tour operator’s margin scheme (TOMS) is an EU VAT simplification measure originally aimed at traditional tour operators selling package holidays to travellers and preventsthe business from having to register for VAT in numerous EU jurisdictions overseas. The downside however is that VAT has to be accounted for on the entire margin (including the flight proportion) for EU trips; this margin VAT cannot be recovered by customers, even if they in business.
Travel businesses that have historically acted as disclosed agents for VAT purposes and have thus been able to zero rate the fees or commissions they earn on flight sales, can inadvertently fall into the TOMS net if they apply undisclosed mark-ups to their sales of flights. There are a number of Travel Industry VAT mitigation arrangements that can be put in place to prevent the business from having to account for VAT on the sale of flights, but these can often only be put in place prospectively and so do not prevent historic liabilities from arising in this area.
Until January 2010 travel businesses based in the UK were afforded a degree of flexibility in relation to their activities and TOMS, in that they were able to opt out of or into the regime. This was attractive for businesses in the corporate travel sector as they were able to opt out of TOMS and use the normal Travel Industry VAT rules instead, meaning their corporate clients could recover VAT on travel arrangements. The loss of the ‘opt out’ has increased the cost of business travel as TOMS VAT is sticking tax.