Holiday VAT causes spat

Travel agents plan to challenge Customs & Excise’s decision not to alter the VAT treatment of discounts on package holidays provided by tour operators.

Travel agents routinely discount holidays and pass the brochure price, less commission, to tour operators. The operator accounts for the full brochure price under the Tour Operators’ Margin scheme, while the agent accounts for output tax on the commission – deducted as input tax by the operator.

Customs said no VAT adjustment was needed even though travellers paid lower prices than advertised. Chris Fyles, a senior VAT manager in KPMG’s travel and automotive group, said the Elida Gibbs test case two years ago established that tour operators should only be liable to VAT on the final price. He said: ‘Customs are saying they don’t agree. They haven’t entertained refunds. So it is a bit of a surprise.’

David Bennett, head of Deloitte & Touche’s indirect tax travel practice, said: ‘In certain circumstances, it will lead to double taxation. We will be challenging the matter.’

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