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Travel commission

15 October 2007
Categories: News , VAT
HMRC have changed their interpretation of how VAT law applies to the treatment of commission earned by sub-agents in the travel industry

The following comes from their Brief explaining the changes.

Para 2.6 of Public Notice 709/6 'Travel agents and tour operators' states: 'If you are acting as a sub-agent (that is, an intermediary acting for another intermediary), then your services, which are supplied in the UK, are standard rated'.

There is no change if sub-agents provide services which facilitate the making of supplies, such as a simple introduction. In this case, the place of supply for this service is where the sub-agents are established. Where this is in the UK, their commission will be liable to VAT at the standard rate.

However, if sub-agents are involved in the making of arrangements for travel services, then the place of their supply will follow the normal rules for supplies by intermediaries. This will depend on:

  • where the underlying arranged supply is made; and
  • where this is in the EU, whether the customer is EU VAT registered.

The liability of the sub-agents' supplies for which they receive the commission will follow that of the underlying supply. Where they are involved in the provision of specific supplies of zero-rated passenger transport, their commission for those transactions will also be zero rated. Where they are involved in the provision of a package supplied by a UK tour operator under the tour operators' margin scheme, their commission will continue to be standard rated.

The making of arrangements for travel services does not include supplies of market research, advertising, promotional or similar services. Supplies of these services will continue to be standard rated, as will payments received from the providers of computerised reservations systems in respect of travel agents' use of these sites.

The vast majority of supplies made by sub-agents are to other VAT registered businesses, which are able to recover tax deducted. This change, therefore, will be broadly revenue neutral.

Businesses are not required to correct past declaration errors which were made on the basis of the Revenue's earlier interpretation of the law. They may apply the zero rate, where appropriate, with immediate effect, and otherwise should do so no later than 1 November 2007.

Categories: News , VAT
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