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Opinion: UK VAT travel exemption hangs in the balance

By September 24, 2013January 9th, 2024Uncategorized|VAT news

On the 26th September 2013 the ECJ will release its decision on whether the wholesale of travel arrangements should fall within the VAT Tour Operators Margin Scheme (‘TOMS’). The case has essentially come about due to the continued inconsistency of VAT treatment applied by different EU Member States to the sale of wholesale and retail travel arrangements.  UK established travel businesses currently exclude wholesale transactions from TOMS and the ‘normal’ VAT rules apply. For example, the supply of passenger transport will be subject to VAT in the country in which the transportation takes place and the supply of hotel accommodation will be subject to VAT in the country in which the hotel is located.

As a result of the inconsistencies,  non-taxation can arise where:

  • the wholesaler is established in a country that excludes these sales from TOMS; and
  • the travel arrangements in question take place in a country that applies TOMS.

In this example no VAT would be due in either location.

Before the summer the AG gave his opinion that retail AND wholesale travel sales fall within TOMS.

Should the ECJ decision follow the AG opinion this would mean that all Member States would be required to change their local legislation to include wholesale supplies in TOMS. As a result any VAT due will be accounted for and collected in the country in which the travel business has established his business. Therefore there should be no risk of non-taxation.

Critically for UK established travel businesses however such an outcome would significantly increase the cost of VAT to the business. This is due to the fact that most UK based travel businesses who account for UK VAT under TOMS make use of the approved HMRC Transport Company Scheme. This is a concession which allows those operating the scheme to enter into a wholesale arrangement with a group company to buy passenger transport at an inflated mark-up. This results in no UK VAT being due under TOMS in respect of the passenger transport. This arrangement is unique to the UK and is hugely beneficial to those applying it.

Should the ECJ determine that wholesale supplies fall within TOMS, the HMRC sanctioned Transport Company Scheme will no longer provide the desired VAT benefit, leaving many UK travel businesses with a significantly larger VAT bill going forward, unless use if made of alternative arrangements such as business migration outside the EU and disclosed agency models.

If you want to find out more regarding the case or if you want to arrange a meeting to discuss your business model then please do not hesitate to contact Julie Park on 01962 735 350 or via email at

First published in Travel Weekly on 24th September.

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