The travel industry is a complex one. It frequently has to deal with the intersection of both tax and consumer regulation. While the sector has different types of businesses ranging from airlines, transportation groups and hospitality, through to bed-banks and travel agents themselves, this article specifically considers travel agents and their own unique taxation position, whereby the location of supplies (where holidays are enjoyed) can be, and usually are, different from the location of the businesses themselves.
As travel habits have evolved since the introduction of the traditional package holiday of the 1960s, the addition of new destinations, different booking channels, related products and experiences can all impact the tax profile of a business. As businesses continue to innovate and introduce new offerings, this drives the need to keep changes in the supply chain and resulting tax implications under review.
The EU position
In 1977, the EU introduced the Tour Operators’ Margin Scheme (TOMS). The purpose of the TOMS was to simplify VAT compliance for travel businesses operating across the EU. Under this scheme, VAT on travel packages is accounted for in the country where the travel business is established, removing the need to register for VAT in each destination where services are provided. TOMS is based on EU VAT legislation and has been implemented by all Member States, including the UK prior to its exit from the EU in 2021, through their respective domestic laws.
The TOMS is now being actively consulted on at an EU Commission level. This new initiative seeks to revisit potentially outdated regulations and possible distortions both within the EU single market, as well as from a non-EU perspective. The industry, and its advisers, are being encouraged to share their opinions on potential changes to the special VAT scheme in place for travel agents.
Meanwhile, there are also other changes afoot. Considered to be the biggest VAT reform since the introduction of the single market, VAT in the Digital Age (ViDA) aims to help combat VAT fraud and ease administrative obligations for businesses, and these changes were finally agreed during March 2025. The first measures introduced by ViDA will be in force throughout 2025, and the final proposed changes will be implemented in 2035.
While the changes are far-reaching, what is of particular interest for the travel industry will be the platform economy, as the trade has developed to be.
From January 2030, ViDA will introduce a deemed supplier obligation for digital platforms that facilitate:
- short-term accommodation rentals (30 consecutive nights or fewer)
- road passenger transport services.
Under this new rule, platforms acting as intermediaries will be treated as the supplier for VAT purposes. This means they will be responsible for charging, collecting, and remitting VAT on behalf of the underlying service provider. This will have wide-reaching implications for travel agents and it should be noted that EU Member States may choose to apply this rule from July 2028, ahead of the mandatory 2030 start date. Businesses should prepare for staggered adoption across jurisdictions.
Further afield
While the industry has always, from an indirect tax perspective, been focused on the TOMS, it's important to note that this is an EU construct only. Approximately 150 jurisdictions throughout the world have some form of indirect tax mechanism that, again, are developing quickly. The appetite to tax is moving away from traditional 'bricks and mortar' and more to consumption based approaches. Put simply, if a UK citizen travels to the other side of the world, those far-flung tropical destinations may now seek to apply tax. This creates pricing decisions as well as complex compliance obligations.
We would encourage travel businesses to consider this developing landscape in terms of their own model.
Homeward bound
So what does this mean for our UK travel businesses?
Grant Thornton’s Q2 2025 travel industry review demonstrates a resilient course through 2025, with strong fundamentals creating a healthy appetite for M&A in the sector. But while demand remains robust, dealmakers are contending with some turbulence: unpredictable booking patterns, geopolitical headwinds, and a market that’s still finding its post-COVID rhythm.
Data from ABTA shows that despite financial pressures, holidays remain a priority for most, with more than two-thirds (68%) planning to travel abroad in the next 12 months and the vast majority (84%) planning to spend either just as much or more on their holidays next year as they did this year. A couple of ABTA’s trends in particular support this desire to prioritise spending on travel, with long-haul holidays. The desire to travel is undiminished, and M&A activity remains steady. With the majority of 2025 bookings already made, the focus now shifts to FY2026 where tax and pricing will be key.
For more insight and guidance and to receive updates on the subject, contact Irena Scullion.
