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HMRC internal manual

VAT Transport

Zero-rating of passenger transport: Perks, incidental services and ancillary supplies: Business Brief 4/96 on airline passenger perks

(referred to in VTRANS021020)

Business Brief 4/96: VAT treatment of airline passenger perks

Customs & Excise have reached agreement with the airline industry on the VAT treatment of passenger perks offered by airlines.

Under the agreement passenger perks may be treated as part of a supply of air passenger transport provided certain criteria are met.

This agreement is to operate with immediate effect for an initial period of six months. It will then be subject to review and, if appropriate, extended for a further period.

Allowable perks

To be eligible—the perks must be included in the flight ticket price for the class of travel concerned, with no discount if the perk is not taken up; form an integral part of an international flight (as illustrated below); not be gifts of goods (except where currently permitted, for example in flight catering, toiletries); and be restricted to one per customer, although the customer may be offered a choice of options.

The following perks are treated as an integral part of an international flight: limousine transport to or from the airport; or up to two days’ car hire for a one way ticket (four days for a return ticket); or hotel or similar accommodation; or car parking at the airport. The accommodation should not be for more than one night’s stay and there must be a direct connection with the zero rated travel, eg where it is necessary to catch a connecting flight or it is required for the night prior to a take off or on the night after landing.

When allowable perks are supplied to the passenger they will be treated as part of the zero rated supply of passenger transport. One effect of this is that the provision of allowable perks will not, in itself, render the airline liable to use the Tour Operators’ Margin Scheme. Airlines would also be able to recover any related input tax, subject to the normal rules.

New options will not be automatically disallowed. However, individual prior approval must be obtained from local VAT offices to ensure that the services are incidental to and directly connected with the air travel.

Perks which are not allowable

The following perks should be treated as separate supplies and taxed accordingly— restaurant meals, theatre trips and other entertainment provided during a trip or holiday, hotel accommodation and car hire other than as specified above. This list is not exhaustive. The provision of perks which are not allowable may mean the airline is liable to use the Tour Operators’ Margin Scheme. For further information see Notice 709/5 “Tour Operators’ Margin Scheme”.


The agreement has been reached following a decision in the High Court about certain optional extras provided to international passengers by Virgin Atlantic Airways Ltd and Canadian Airlines International Ltd (STC [1995] 341). In those cases it was decided that optional extras supplied by those airlines should be treated as part of a single zero rated supply of air transport where these are offered as part of the ticket price for air travel.

For further information traders and their advisers should contact their local VAT business advice centre listed under Customs & Excise in the telephone book.