special travel agency regime vat

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• Business tax
• Accounting for VAT

Travel agents (VAT Notice 709/6)

How VAT affects travel agents and tour operators.

This notice cancels and replaces Notice 709/6 (March 2002). It applies to supplies made in both Great Britain and Northern Ireland unless otherwise stated. References to UK should be construed accordingly.

1. Overview

1.1 information in this notice.

This notice explains how VAT applies to travel agents and tour operators.

This notice has been put into a new format and the title, summary and subheadings have been changed to meet GOV.UK standards.

1.2 How to account for VAT if you are a travel agent

If you are a travel agent, how you must account for VAT depends upon your relationship with your customer. The term ‘travel agent’ is often used loosely and a travel agent may act in 3 ways, which will affect how you must account for VAT.

1.3 How can a travel agent act

A travel agent can be:

• an agent (that is, intermediary) - see section 2
• a travel agent acting in its own name - see section 4
• a principal - see section 5

1.4 Work out how you are acting

You will have to look at the contractual and documentary evidence between yourself and your customer, see paragraphs 2.1 , 4.1 and 5.1 .

1.5 Effect of your trading name when you decide how you are acting

What matters is how you are acting, not what you call yourself. As a travel agent you may be acting as an intermediary for some supplies and a principal for others. You must ensure that you follow the appropriate VAT rules for each case.

1.6 Work out your status if you receive commission from your customer

You are not necessarily an intermediary if you receive commission from a customer - you must look at the documentary evidence, for example, contracts and how the supply is advertised to your customer.

2. Intermediaries

2.1 when you are acting as an intermediary.

You will be acting as an intermediary if:

• both you and your principal have agreed that you will act as their intermediary (agent), you must be able to demonstrate this, normally by holding commercial documentary evidence, for example, an agreement or contract
• you must routinely fully disclose the name of the principal you are acting for, for example, on all tickets you issue or in your booking terms and conditions
• you are not taking any significant commercial risk in relation to the services you are arranging

You can find more information about the general treatment of intermediaries (agents) in VAT guide (VAT Notice 700) .

2.2 Work out the value of supplies as an intermediary

As an intermediary, the value of your supply upon which any VAT may be due will be the amount of commission due from your principal, or the fee that you charge, excluding any VAT itself. It is your responsibility to issue invoices for your supplies. However it is common practice in the travel industry for tour operators to use a self-billing system, which is explained in paragraph 2.3.

2.3 Self-billing

This is where your principal, for example, the tour operator or travel provider, takes on responsibility for invoicing your supply to them. They can only do so with the prior permission of both you and their local VAT Business Advice Centre. Even if the tour operator or travel provider issues your sales invoice to them under a self-billing arrangement, it remains your responsibility, as the supplier of the intermediary service, to determine the correct VAT treatment.

You can find more about invoicing and self-billing in VAT guide (VAT Notice 700) .

2.4 Work out if your commission is liable to VAT

In order to determine whether or not your commission is liable to VAT, you will need to consider the place of supply of your service and the VAT liability of the underlying supply.

2.5 Place of supply for your commission

This will depend on the nature of the supply that you are arranging. This is explained in further detail in section 3 .

2.6 Acting as a sub-agent

If you are acting as a sub-agent (that is an intermediary acting for another intermediary), then your services, if supplied in the UK, are standard-rated.

2.7 Reclaim input tax

If you are acting as an intermediary under the terms of paragraph 2.1 you can normally reclaim VAT, subject to the normal rules, which is chargeable and invoiced to you by your UK VAT-registered suppliers if it relates to:

• taxable (including zero-rated) supplies
• supplies made outside the UK that would have been taxable (including zero-rated) if made in the UK
• supplies of services to a person who belongs outside the UK or European Commission, or the making of arrangements for such supplies, provided that the supply is an exempt
• insurance service or certain specified exempt financial service, or would have been if made in the UK

For further information about input tax, you should refer to VAT guide (VAT Notice 700) and Notice 706: partial exemption .

3. Place of supply and VAT liability of intermediaries’ services

3.1 information in this section.

This section covers the VAT liability of intermediaries’ services supplied in the UK. It does not cover supplies which are outside the UK and therefore outside the scope of UK VAT.

3.2 Establish the place of supply of my intermediary services

As a travel agent, in addition to travel, it is possible that you may be involved in arranging supplies of other services for your customers, for example you may arrange insurance, financial or other services such as tuition or car hire. If you act as an intermediary in arranging such services, you should refer to Place of supply of services (VAT Notice 741A) in order to determine the place of supply of your services.

3.3 Work out the place of supply when the service is outside the UK

If the place of supply of your service is in an EU member state:

• you may be liable to register and account for VAT in that country
• if your principal is registered for VAT in an EU member state, your principal may be responsible for accounting for the VAT under the ‘reverse charge’ procedure, this is covered in more detail in Place of supply of services (VAT Notice 741A)

It is best to contact the relevant EU member state to obtain the correct information for your supplies.

3.4 Work out the place of supply and VAT liability of insurance services arranged in the UK

Certain insurance-related intermediary services, including arranging for the provision of travel insurance, are exempt. Your supply of arranging travel insurance is exempt if the insurance is supplied in:

• isolation of any travel
• relation to a supply of a travel service on which no UK VAT is payable
• relation to the sale of a travel service which bears UK VAT, provided that you notify the traveller, in writing, the price of the insurance as due under the contract of insurance and any fee related to that insurance charged over and above the premium

You can find more information about insurance services in Insurance (VAT Notice 701/36) and Notice IPT1: Insurance Premium Tax .

3.5 If the place of supply of financial services which you arrange is the UK, what is the VAT liability

The issue, transfer or receipt of, or any dealing with money is an exempt supply, for example, if you exchange an amount in sterling for the equivalent amount in euro and make a commission, your supply is exempt.

You can find more information about financial services in Notice 701/49: finance .

3.6 VAT liability on commission for passenger transport services

If you act as the initial intermediary in arranging zero-rated passenger transport then your services of arranging it are also zero-rated. Zero-rated passenger transport includes:

• scheduled flights
• journeys from a place within to a place outside the UK and vice versa
• most UK transport in vehicles with a carrying capacity of not less than 10 people

Further information can be found in The VAT treatment of passenger transport (VAT Notice 744A) .

However, see paragraph 2.6 if you are not the initial intermediary and sections 4 and 5 if you are making arrangements of designated travel services.

3.7 VAT liability of commission for designated travel services

If you are acting as an intermediary for a tour operator who is established (or has a fixed establishment) in the UK, then your services are standard-rated. If you are acting as an undisclosed intermediary or principal, see sections 4 and 5 and Tour Operators Margin Scheme (VAT Notice 709/5) .

4. Intermediaries acting in their own names

4.1 when you are acting in your own name.

This is an arrangement where the ultimate provider of the goods or services, for example the travel or accommodation provider, remains undisclosed to your client. You must be able to demonstrate this, normally by holding commercial documentary evidence, for example an agreement or contract. Further information on intermediaries acting in their own names can be found in VAT guide (VAT Notice 700) .

4.2 How to treat your commission

In these circumstances, the procedures explained in sections 2 and 3 cannot be used and you must account for VAT on your commission (profit margin) under the Tour Operators Margin Scheme .

5. Travel agents acting as a principal

5.1 when you will be acting as a principal.

You will be supplying travel packages (including transport or accommodation) to your customer, some of which you will have bought in from other businesses, or supplied in-house from your own resources. You must be able to demonstrate this, normally by holding commercial documentary evidence, for example, an agreement or contract.

5.2 How to account for VAT

You must account for VAT using the Tour Operators Margin Scheme. For details about what that scheme covers and how it operates see Tour Operators Margin Scheme (VAT Notice 709/5) .

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

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How to manage the VAT of a travel and/or event agency?

January 31, 2024

minutes of reading

How do you know whether your activity is tax-exempt or taxable? Which system should you apply and to what amount?

In the tourism sector, travel agencies are subject to a specific regime known as the profit margin. The subject has been the subject of much ink and sweat over the past 40 years, and may seem frightening at first glance...‍‍

Don't panic! Ezus shares its summaries to give you a better understanding of the subject, which we then used to integrate into our travel production and management software for receptives, tour operators and organizers at all levels.

I. Summary of the VAT topic 🔦

All operators offering travel services are legally referred to as "travel agencies", since the application of the specific tax regime depends on the nature of the service provided, and not on the quality of the service provider 🤔.

These tour operators cannot deduct the value-added tax (VAT) that appears on invoices issued by transport contractors, hoteliers, restaurateurs, entertainment contractors and other service providers supplying the final service to the B2B or B2C customer.

However, it is possible to be exempted from value-added taxes in certain circumstances.

VAT exemption conditions :

• If the company is based outside the European Union
• If the company is based within the European Union, and sells services outside the EU or overseas, or services that have not been performed (cancellations, no-shows, modification fees, insurance).

How the 2 VAT systems work for EU services :

Let's take a look at the two VAT systems applicable to services provided within the European Union. First, the common system.

1. COMMON PLAN ( transparent)

This regime applies in several cases, namely if the :

• does not sell transport or accommodation ;
• or directly operates its own vehicles, accommodation, restaurants (see list*).

VAT on purchases, such as that applied to expenses like catering or room hire, is generally recoverable. However, in France, it is generally not recoverable when associated with transport, hotels and car rentals.

In addition, the single service provided by a travel agency is taxable at the standard rate. Other activities carried out by travel agencies and tour operators are subject to their own rates, which may be reduced (rental of tickets for shows, sale of guides, provision of transport, accommodation, etc.). ‍

The sales invoice must display the current VAT rate, to guarantee total transparency.‍

2. SPECIFIC PLAN  (or profit margin)

This scheme only applies to travel packages: you must sell a minimum of accommodation and/or transport in order to qualify.

In this case, only the VAT incurred on the agency's overheads (such as electricity or advertising costs, for example) is recoverable.

VAT on expenses directly related to the trip is unfortunately not recoverable. The VAT payable is calculated on the basis of the all-inclusive margin. The rate applied to this margin depends on the different general VAT rates applicable in the country. For example, the French VAT rate is 20%.

VAT on sales is not (necessarily) displayed.‍

However, a third scenario exists, in which neither of the two regimes applies...‍‍

3. VAT NOT APPLICABLE

The value-added tax regime is not applicable in two cases only, namely if: ‍

• It's air.
• The services are rendered to customers using means of operation owned or leased by the agency (such as the provision of accommodation or passenger transport, sales for consumption on the premises, the rental of camping sites, when the travel agent directly operates the vehicles, hotel establishments, restaurants or grounds)

Note that the 3 scenarios can apply simultaneously on the same file depending on the services. There may even be exempt expenses as well 😰.

II. Calculate VAT margin📊

To calculate the VAT on margin to be paid, here are the main formulas to know:

• Gross Margin = Total Sales Price incl. VAT - Total Purchase Price incl. VAT
• VAT on Margin = Gross Margin * (1-(1/(1+VAT Rate)))
• Net Margin = Gross Margin - VAT on Margin

III. Good to know about VAT for your travel agency🌟

1. #reduced-rates.

1. In France, certain sectors benefit from a reduced VAT rate of 10%, such as rail, air and hotel.

2. Partners' commissions are not taxable, and are therefore added to the travel operator's net margin.

3. VAT on margins invoiced by one travel agency to another is not deductible.

2. #billing

1. In BtoB, agencies are obliged to issue an invoice. In BtoC, a note containing the agency's contact details, those of the customer, the amount including VAT and details of the trip is sufficient.

2. Travel agencies are not obliged to show the amount of VAT on their invoice (so as not to show their margin).

3. Not being obliged to show VAT, the agency may:

• For a French customer, indicate the VAT (on margin) so that the customer can reclaim the VAT.
• For a foreign European ‍customer, make a duty-free invoice (HT) so that the latter pays HT only. It's up to the French agency to register this invoice with the foreign customer's intra-Community VAT number on the tax site. The foreign customer is liable for VAT in his own country. Alternatively, the agency can issue an invoice exclusive of tax + VAT, with the foreign customer paying the VAT.
• For customers outside the European Union, issue an invoice inclusive of VAT. In this case, there is no VAT recovery on French services (territoriality of services consumed in France).

Of course, if the French agency carries out its services outside France, then invoices without VAT = VAT included, as they are not subject to VAT on the margin. It's up to the French agency to pay VAT in France if it buys HT from its European suppliers...‍

4. The words "Régime particulier - Agence voyages" must appear on every invoice in a french exercise. ( CGI, annexe II, art. 242 nonies A, 12° ) (15€ fine/bill if omission).

3. #accounting

1. According to the European Court of Justice, VAT on margins must be calculated on a case-by-case basis, whereas French law allows a choice between piecemeal and monthly calculations.

2. Travel agents who simultaneously carry out operations that fall under the specific travel agency regime and operations that do not fall under this regime must constitute separate sectors under the conditions defined by the article 209 of the annexe II of CGI .

3. Tours and cruises carried out in France or the EU are taxable in proportion to the expenses incurred.

Thus : Taxable amount = price of stay x (number of days spent in France and an EU country / total length of stay).

4. Transport services are taxable only for the part of the journey made in France, in the case of rail and road transport. (For example, for a flight outside the EU, the part of the flight between two cities in mainland France is not subject to VAT).

Thus: Taxable amount = price of ticket x (number of kilometers traveled in France / total number of kilometers).

Note that for Corsica, the "mainland-island" segment is exempt from VAT.

IV. Problems with the VAT margin system 🆘

Although many things have changed since 1977 and the introduction of this tax system, it continues to exist, while paradigm shifts have multiplied over the decades (cf. globalization, the Internet, changes in the agent profession...). Travel industry players are still wondering:

Why does my agency margin decrease when selling stays in the EU?

Do receptive operators pay VAT twice?

Can a TO reclaim VAT?

Is it in my interest to have an events business with my agency?

Tour operators cannot deduct VAT on the services they pay for from the cost price of their holiday or trip. In return, he charges VAT only on his margin and not on his total sales price.

Incoming agencies follow the same rules, and many French DMCs deplore having to pay VAT on both sales and purchases.

In short, this system has its limitations because :

• The scheme increases the price of BtoB services by the amount of VAT applicable, and encourages customers to deal directly with hotel or transport service providers in order to retain the benefit of input VAT deduction.
• Its complexity leads to management problems (one of our agency clients overpaid €250,000 in VAT over 5 years), and even prompts some companies to spin off the activities concerned to avoid extending the application of the derogatory system to all the services making up the package sold to customers (e.g. registration for a congress combined with an overnight hotel stay).

V. Influence on the event industry 🥶

This derogation penalizes not only travel agencies, but also event agencies and PCOs (professional congress organizers) providing single services to taxable customers, depriving them of the right to deduct input VAT.

This derogation penalizes BtoB specialists all the more: taxation applies not only to transport and accommodation operations, but also to all operations provided simultaneously.

As a reminder, VAT deduction in the MICE sector is more flexible, particularly for seminars, meetings or events organized by a French events agency in France:‍

• Organized by yourself : optimized deductibility
• Organized by a travel agency: VAT deductible only on the agency's margin , if indicated on the invoice.
• Organized by an agency under a mandate contract: optimized deductibility .

In addition, expenses for catering, room hire, team-building and overnight stays for external or technical staff are exempt.

VI. Definitions 💁

Provision of services : commercial operation carried out by a travel agency as an intermediary. This means that the service transaction is in the name of the agency, while using goods and services from suppliers (subject to VAT) who are external to it.

Calculation of the tax base : under the specific travel agency regime, the agency's tax-free margin is equal to the difference between the total amount paid by the traveler (revenue) and the cost of purchasing the services borne by the agency (expenses). The VAT rate is calculated on this amount, in contrast to the ordinary law system, where VAT is applied to the selling price to be invoiced to customers.

VAT margin system: applies to the margin made by the travel operator. It applies to the production and distribution of a holiday/tour to the final consumer, whether an individual or a company.

Expenses include the net amount, after deduction of rebates and discounts granted, of sums invoiced to the tour operator by the various service providers who carry out the services rendered to customers (including: reseller commissions, reimbursements and the cost price of information and consultancy services).

🚨 Taxation changes every day... If in doubt, the advice of a tax expert or accountant always prevails!

Not yet an Ezus customer?

Thanks to our software solution , you can halve your document creation times and have all your personalized documents and travel management in one place. Find out how during a demo .

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• Le B.A-BA de la TVA  par L'Echo Touristique.
• TVA - Régimes sectoriels - Agences de voyages et organisation de circuits touristiques , article écrit par le Gouvernement Français.
• Guide en ligne pour tout savoir sur la TVA , par Tourmag.
• Pour une liberté de choix entre le régime de la TVA sur la marge et le régime de droit commun par l'UNIMEV.
• Chaîne Youtube sur La TVA de l'agence de Voyage .
• Comment optimiser la récupération de TVA dans l’évènementiel / MICE? , article de Ideal Meetings.

* List of examples: provision of transport, accommodation, sales for consumption on the premises, rental of camping sites, when the travel agent directly operates the vehicles, hotels, restaurants or sites. The same applies to the rental or subletting of tents, caravans, mobile homes or means of transport (motor vehicles, boats) owned or leased by the travel agent.) Also excluded from the special scheme are: the rental of show tickets, foreign exchange transactions, the sale of guides or photographs, and the placement of insurance or assistance contracts.

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Special system for travel agencies

Where is the place of execution of transactions.

The agency's operations with respect to each traveller are considered single service provisions , even if they consist in multiple supplies and services to the traveller. Said provision is considered to have been executed in the agency's place of business or permanent establishment.

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