The article explains how the VAT classification of a travel business as an agent or principal determines whether VAT is charged on the full travel supply or only on the intermediary commission. It outlines the key contractual and commercial factors that influence this classification and highlights the financial implications for finance teams, including VAT accounting, input VAT recovery, and the applicability of the Tour Operators Margin Scheme (TOMS).
A principal supplies travel services in its own name and may need to account for VAT on the full value, apply TOMS, or be zero‑rated; an agent arranges services supplied by another party and its supply is intermediary services, so VAT is considered only on its commission or fee.
If the business acts as an agent, VAT is charged only on its commission or fee; if it acts as a principal, VAT may be due on the entire margin of the travel supply.
Key factors include the contractual position between parties, who bears commercial risk, how the services are presented to the customer, and the legal relationship between supplier, intermediary, and traveller.
Finance teams must decide whether VAT is accounted for on the full selling price or only on commission, whether VAT is due at all, whether input VAT can be recovered, and whether TOMS applies.
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