It is now commonplace for several different revenue streams to be earned from a single customer transaction as travel businesses seek to replace commission income – this increases the 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 to prevent them 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 and this margin VAT cannot be recovered by customers.

Travel businesses applying undisclosed mark–ups to their sales of flights can inadvertently fall into the TOMS net whereas previously commissions were zero rated.   There are a number 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.

The loss of the ‘opt out’ from TOMS in 2010 has increased the cost of business travel as TOMS VAT is sticking tax.

The VAT Consultancy has a dedicated travel team with a huge amount of experience in advising clients in the travel sector – tour operators, high street travel agents, cruise operators, car hire providers, business travel agents, online travel businesses/bedbanks and GDS operators.

We have experience advising clients on issues such as:

  • 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 (e.g. sale of travel insurance, forex).

As well as providing technical advice, the team has practical experience working in-house with travel and other corporate businesses.