The term "travel agent" nowadays seems to refer to many different types of business in the travel industry - all the service providers, tour operators, event organisers etc. that I am very grateful for when planning my holidays. For VAT purposes however, a travel agent (or disclosed agent) is a little more specific and is based on a travel business' status - specifically whether or not they are deemed by VAT law to act in their own name (principal or undisclosed agent), or instead act on behalf of someone else (disclosed agent). The differences can be quite subtle which can cause uncertainty (as is unfortunately ever too often with VAT principles!) There is no specific definition of an agent in VAT legislation, and so here we have to look to case law to determine how to act as an agent.
What is an agent for VAT purposes?
For VAT purposes, we need to consider the VAT liability of each supply. The difference between being an agent and principal, is what that supply is. For VAT, a "middle man" business can act in one of two ways:
- It can buy the service from the service provider (or other business) and sell it on to its customer - this will mean it acts as principal and forms part of the supply chain, and the supply it makes will be of the underlying services themselves; or
- It can arrange for its customer to buy the service from the service provider and receive a fee or commission for this arrangement service - this will mean it acts as agent, and the supply it makes will be of the intermediary services, not the underlying travel services.
Typically, an agent will receive a fee or a commission from either the supplier or customer (or both), and this will be the consideration for the intermediary services and the only income that is proper to the agent (even if the agent receives cash from its customer to pay the suppliers, this will not be the agent's own income because it doesn't relate to a supply made by that agent). The VAT liability will often be different from that of the underlying travel services too, and this should be considered.
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