Travel & Leisure

The Travel and leisure sector is an important and growing sector. Consumers are increasingly spending their disposable income on experiences rather than things.

The sector comprises travel intermediaries including tour operators and the travel and leisure providers themselves. As most travel is sold to final consumers, any VAT borne by the travel intermediary or the travel / leisure provider is a direct cost to the business. The sector has many issues in common with the retail sector and some leisure providers are also not for profit bodies

What are the issues?

Travel is a particularly complex area for VAT and with tight margins in the sector, businesses need to get their VAT right.


Travel has its own special VAT regime the Tour Operators Margin Scheme (“TOMS”). The TOMS is quite unlike normal VAT accounting, as it calculates VAT on the profit made by the business. Although it’s supposed to make life simpler, like many things in the World of VAT it’s not as simple as it was intended. As it’s a global scheme operating outside of any accounting system, it’s not subject to any of the controls built into accounting systems and this together with its inherent complexity can give rise to errors. The EU is looking to reform TOMS and Brexit will cause further uncertainty for businesses in the sector.

Are you an agent or a principal?

To make matters worse the VAT regime for travel agents is completely different – and it’s not always clear in which capacity a travel business is acting. There is a growing body of case law created by HMRC’s largely unsuccessful attempts to argue that intermediaries are liable to VAT under the TOMS rather than as agents. The VAT regime has not kept pace with changes in the structure of the supply chain – for example travel agents offering dynamic packaging and changes in the regulatory regime including the Package Travel regulations.

International activity

Providers of services need to consider their international obligations and even though the TOMS is designed to avoid overseas VAT registrations, it is interpreted differently across the EU, so intermediaries need to consider VAT rules in other territories.

VAT on transport

International passenger transport is not liable to VAT and this can give rise to complexity and opportunity in the context of TOMS and agency accounting and for providers themselves.

Self billing and commission accounting

Most travel suppliers operate self billing for commissions paid to travel agents. This regime turns VAT accounting on its head with agents reliant on the suppliers to get things right.

How can we help?

Alison Carey has many years’ experience advising growing and established travel businesses. She understands the industry and can help you navigate the VAT minefield that travel businesses need to deal with.