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HMRC internal manual

VAT Partial Exemption Guidance

HM Revenue & Customs
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Guidance for specific trade sectors: the travel industry: tour operators and travel agents: how the business is acting and where supplies take place

Tour operators and travel agents

It is usual for tour operators and travel agents to make exempt supplies - particularly as they might provide:

  • insurance;
  • foreign currency;
  • as well as general exempt activities, for example those related to land and buildings.

Before considering a suitable partial exemption method, you need to be satisfied in what capacity your business is acting, where the supplies are taking place and the liability of those supplies.

How the business is acting

The word ‘travel agent’ is a loose term and does not necessarily mean that the business will be acting as an intermediary. Businesses within the travel industry can act as principals, undisclosed intermediaries; or disclosed intermediaries. It is not uncommon for them to act in various ways within one registration.

We treat… as acting as…
tour operators principals or undisclosed intermediaries
travel agents disclosed intermediaries

Businesses acting as principals or undisclosed intermediaries (tour operators)

Where businesses act as principals or undisclosed intermediaries (agents acting in their own names), then the travel supplies they… must be accounted for under…
* buy in for resale * the Tour Operators’ Margin Scheme (TOMS). (Further information on this can be found in V1-23, Chapter 12 Tour Operators’ Margin Scheme.)
* supply from their own resources (in-house supplies) * the normal VAT rules

Business acting as disclosed intermediaries (travel agents)

This is where they are acting as an agent. The liability of their commission depends upon the place of supply and the liability of the underlying supply.

Where supplies take place

Both tour operators and travel agents are involved in supplies where the place of supply is outside the UK. These supplies are outside the scope of UK VAT and therefore fall under regulation 103. These supplies and the appropriate inputs should be excluded from any partial exemption calculations made under regulation 101 (standard method) or regulation 102 (special method), unless a ‘combined’ method has been agreed with the Commissioners.

V1-4 Place of supply gives further information on the place of supply of services and goods. You can find further information about Regulation 103 supplies and ‘combined’ methods at PE34000 - Regulation 103: Recovery of input tax attributable to foreign and specified supplies.