Agent or principal: start here

How VAT applies to a travel business depends on the capacity in which it sells. HMRC says a travel business can act in three ways, and the way it acts decides how it accounts for VAT:

• As a disclosed agent, also called an intermediary, arranging travel for a named supplier in return for commission or a fee.

• As an undisclosed agent, acting in its own name, where the real provider of the travel is not disclosed to the customer.

• As a principal, buying in travel and selling it on, or providing it itself.

HMRC’s guidance says: “What matters is how you are acting, not what you call yourself.” Being paid commission does not on its own make you an agent, and one business can act as an agent for some sales and as a principal for others.

To act as a disclosed agent, HMRC says three conditions must all be met:

1. You and your principal have agreed that you act as its agent, and you can show this, normally with a written agreement or contract.

2. You routinely disclose your principal’s name in full, for example on tickets or in your booking terms.

3. You take no significant commercial risk on the services you arrange.

The courts take the same approach. In the Secret Hotels2 case in 2014, the Supreme Court started with the contracts, then asked whether they reflected what actually happened, and the labels the parties used were not conclusive.

Registering for VAT

You must register for VAT if, at the end of any month, your taxable turnover for the previous 12 months is over £90,000, or if you expect it to go over £90,000 in the next 30 days alone. Under the 12-month test, you must tell HMRC within 30 days of the end of the month in which you went over. The deregistration threshold is £88,000, and both figures are unchanged for 2026 to 2027.

What counts as taxable turnover depends on how you sell:

• As a disclosed agent, it is your taxable commission and fees, not the value of the holidays you sell. Zero-rated commission, such as commission for arranging scheduled flights, still counts towards the threshold, but exempt commission for arranging travel insurance does not, and nor does commission that is outside the scope of UK VAT, such as most commission from overseas principals.

• Under TOMS, it is your margin on the travel you buy in and resell, including zero-rated margins, plus the full value of your other taxable sales. It is not the total value of your bookings.

You can register voluntarily below the threshold. HMRC signs new registrations up to Making Tax Digital for VAT automatically, so you keep digital records and file returns, normally every three months, through compatible software.

VAT on commission and fees

As a disclosed agent, you account for VAT on your own service, which is the commission due from your principal or the fee you charge, not on the price of the travel. How that service is taxed depends on what you arrange and for whom:

• Passenger transport. If you are the initial intermediary arranging zero-rated passenger transport, your commission or fee is zero-rated too. That covers all scheduled flights, journeys into or out of the UK and most UK journeys in vehicles with 10 or more seats.

• Travel from UK tour operators. Commission for selling travel for a tour operator established in the UK, whether a package or a flight-only seat, is standard-rated, even when the holiday is abroad. It is easy to assume that commission on overseas holidays is zero-rated, but it is not.

• Acting as a sub-agent. If you act for another agent rather than for the supplier, your services are standard-rated when supplied in the UK.

• Overseas principals. Commission from a principal that belongs outside the UK, such as an overseas hotel or cruise line, is generally treated as supplied where the principal belongs, so it is outside the scope of UK VAT. VAT may be due in that country instead.

• Travel insurance. Arranging travel insurance is exempt when it is sold on its own or with travel that bears no UK VAT. When it is sold with travel that does bear UK VAT, it is exempt only if you tell the traveller in writing the premium and any fee you charge on top.

HMRC’s travel notices do not deal directly with booking fees you charge customers, but its general VAT guide treats an agent’s booking fee as payment for the agent’s own booking service. A fee charged to a consumer is usually supplied where the travel you arrange is supplied, but its VAT rate does not always follow: a fee for arranging a scheduled flight can be zero-rated, while a fee for booking a UK tour operator’s holiday is standard-rated even when the holiday is abroad. Fees charged to business customers follow different place of supply rules, so agree the treatment of your fees with your accountant.

Tour operators often pay commission through self-billing, where they raise the invoice for your commission on your behalf. You are still responsible for getting the VAT right. The VAT shown is your output tax, and each self-billed invoice must be marked “SELF-BILLING”. HMRC’s travel agents notice still says a tour operator needs HMRC’s permission to self-bill, but HMRC’s self-billing notice, which deals specifically with the subject, says no authorisation is needed.

The Tour Operators’ Margin Scheme

If you buy in travel and resell it in your own name, as a principal or an undisclosed agent, you must use the Tour Operators’ Margin Scheme (TOMS). It is compulsory, and it applies even if travel is not your main business. HMRC’s examples include a hotelier buying in coach travel for guests and a conference organiser supplying delegates’ accommodation.

TOMS covers travel you buy in and resell for the benefit of a traveller without materially changing it, when you sell it from a business establishment in the UK. Accommodation, passenger transport, hire of a means of transport such as a car, trips and excursions, tour guides and airport lounges are always covered, subject to the taxi and private hire change explained below. Other things you buy in, such as catering, admission tickets and sports facilities, are covered only when you sell them in a package with one of those. TOMS does not cover sales you make as a disclosed agent with readily identifiable commission, or your own in-house services when they are not packaged with bought-in travel. You can also leave out occasional bought-in extras, such as car hire, if they come to no more than 1% of your total turnover and you buy in no accommodation or passenger transport.

Under TOMS:

• One sale is one supply. All the bought-in travel in a single transaction is treated as a single supply, and if you sell it from the UK it is treated as supplied in the UK wherever it is enjoyed.

• VAT is due only on your margin on the travel you buy in, which is the difference between what your customer pays and what you pay your suppliers. Anything you provide yourself in a package, such as your own hotel rooms or coaches, is taxed on its value under the normal rules.

• You cannot reclaim VAT on the travel you buy in to resell, such as the VAT on a UK hotel bill. You can still reclaim VAT on your overheads under the normal rules.

• The margin is standard-rated for travel enjoyed in the UK and zero-rated for travel enjoyed outside it. Since the Brexit transition period ended on 31 December 2020, that includes travel enjoyed in the EU. A trip that is partly in the UK must be apportioned fairly, for example by the number of nights in and out of the UK.

• UK transport loses its zero rate under TOMS. A domestic flight or train journey is zero-rated when the airline or train company sells it, but when you buy it in and resell it, on its own or in a package, your margin on it is standard-rated because the travel is enjoyed in the UK.

• You cannot issue VAT invoices for TOMS sales. Travel a business buys for its own staff still goes through TOMS, so business customers cannot reclaim VAT on it.

• Some VAT schemes are ruled out. You cannot use cash accounting for TOMS sales or join the Flat Rate Scheme, but you can use annual accounting.

Wholesale sales of travel to other businesses for resale fall within TOMS, but HMRC lets you opt them out, in which case the normal VAT rules apply to them.

The annual TOMS calculation

TOMS works on a provisional basis through the year, with a calculation after your financial year ends:

1. On each VAT return during the year, you pay VAT provisionally, using a percentage from the previous year’s calculation. In your first year you set the percentage from past trading figures, projections or actual figures.

2. Straight after your financial year ends, you work out the actual VAT due on the year’s margins.

3. You enter the adjustment on the VAT return for the first period that ends after your year end. You cannot wait for audited accounts.

You must do the calculation even if you made no profit or all your margins were zero-rated. HMRC’s TOMS notice, VAT Notice 709/5, sets out the calculations, and those sections have the force of law: a market value method, a cost-based method and a simplified calculation, which you must use when all your sales are standard-rated. You must not switch methods to reduce the tax you pay.

Only direct costs go into the calculation, and they include Air Passenger Duty. Indirect costs, such as advertising, brochures, office costs, card and bank fees and the commission you pay to agents, do not.

Here is a simple illustration with invented figures. A UK short-break company sells only UK packages of hotels and coach travel that it buys in, so everything is standard-rated and it uses the simplified calculation:

• Selling prices for the year, including VAT: £120,000

• Cost of the travel bought in, including VAT: £96,000

• Margin: £24,000

• VAT due, one-sixth of the margin: £4,000

• Provisional percentage for next year: £24,000 as a share of £120,000, which is 20%

In a quarter of the next year with £30,000 of sales, including VAT, the company would pay provisional VAT of £1,000, one-sixth of 20% of £30,000. The year-end calculation then corrects the provisional figures. Your own calculation will depend on your mix of sales, so ask an accountant who knows TOMS to set it up.

Under Method 1, the tax point for a TOMS sale is the earlier of the departure date and the first night of accommodation. Under Method 2, payments received before then also create tax points once they add up to more than 20% of the price. Whichever method you use, you need HMRC’s written permission to change it.

Taxis and private hire since 2 January 2026

Since 2 January 2026, taxi and private hire journeys have been outside TOMS unless they are sold with, and are ancillary to, your own sales of accommodation or of travel by bus, coach, train, ship or aircraft. HMRC says a traditional tour operator that buys in minicab journeys as part of a travel package is not affected, so a transfer sold within a package stays in TOMS. A taxi, private hire or chauffeur journey you resell on its own, as a principal or undisclosed agent, is now taxed under the normal rules. For a journey in the UK that means VAT on the full fare, while a journey abroad is outside the scope of UK VAT but may be taxed in that country.

The change was made by the Finance Act 2026. HMRC’s TOMS notice has not yet been updated to reflect it, so read the law and Revenue and Customs Brief 8 (2025) alongside it.

Selling travel in the EU

Your margin on travel enjoyed in the EU is zero-rated in the UK, but that does not stop EU countries taxing the travel itself, and each decides how it treats travel businesses from outside the EU. You may need to register for VAT in an EU country where your services are supplied. Take local advice before you sell travel there in your own name.

Keeping records

Keep your VAT records for at least six years. For TOMS, you also need records of your selling prices, your direct costs split by type and VAT rate, how you worked out any market values and your currency purchases. Under Making Tax Digital, these TOMS records and the calculation itself do not have to be kept digitally, but they must be kept.

Common mistakes

These are mistakes HMRC’s guidance warns against or has called out:

• assuming you are an agent because you call yourself a travel agent or are paid commission

• treating commission from a UK tour operator on overseas holidays as zero-rated

• reclaiming VAT on travel you buy in and resell under TOMS, such as UK hotel bills

• issuing VAT invoices for TOMS sales, or leaving business customers’ travel out of TOMS

• using cash accounting or the Flat Rate Scheme when you are required to use TOMS

• skipping or delaying the year-end calculation

• switching calculation methods to reduce the tax you pay

• counting indirect costs, such as agents’ commission, advertising or card fees, as direct costs

• changing your tax point or currency conversion method without HMRC’s permission

• treating self-billed commission invoices from tour operators as purchase invoices