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HMRC internal manual

VAT Transport

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HM Revenue & Customs
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Zero-rating of passenger transport: Law

The law governing the zero-rating of passenger transport is in the VAT Act 1994 Schedule 8, Group 8 items 4(a) - 4(d).

Item No 4. Transport of passengers -

  1. in any vehicle, ship or aircraft designed or adapted to carry not less than 10 passengers;
  2. by the Post Office;
  3. on any scheduled flight; or
  4. from a place within to a place outside the United Kingdom or vice versa, to the extent that the services are supplied in the United Kingdom

There is no EC VAT law providing a relief on passenger transport. This is one of the reliefs which was in place when VAT was introduced in the UK, and is retained under the current “transitional” EC VAT regime by virtue of the Principal VAT Directive (Directive 2006/112) Article 371 and Annex X Part B and of Article 110.

Article 372: Member States which at 1 January 1978, exempted the transactions listed in Annex X, Part B, may continue to exempt those transactions, in accordance with the conditions applying in the Member State concerned on that date.

Annex X part B: Transactions which Member States may continue to exempt

(10) the transport of passengers and, in so far as the transport of the passengers is exempt, the transport of goods accompanying them, such as luggage or motor vehicles, or the supply of services relating to the transport of passengers;

Although this provision refers to exemption, at the relevant time the UK permitted, as part of its conditions, the deduction of input tax: in effect to zero-rate the supply, thus we believe we may continue, on that basis, to zero-rate the supply.

Ministers have stated that agreement on any future definitive VAT system will be dependent on the UK continuing to retain such zero-ratings.