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Is there VAT on coach travel?

coach travel zero rated

We commonly hear the term VAT being thrown around throughout daily life, whether we be at work, doing our weekly shop or out in public, but what is VAT and when does it apply?

What is VAT?

Value Added Tax (VAT) is added to the majority of goods, products and services throughout the European Union and the United Kingdom at a value of 20%. This 20% then gets submitted to the government as a form of tax. However, there are a minority of goods and public services which are exempt from VAT, and others that are listed as zero-rated.

What is the difference between exempt and zero-rated?

Exempt and zero-rated are preferential statuses given by the government for certain essential goods and services.

Companies who supply zero-rated products are still able to reclaim their input VAT, even though they don’t add value added tax to their goods. This is because the product is still taxable, but the rate is 0%.

Companies who supply services and goods which are listed as exempt are not VAT registered. There is no value of VAT added to these products and so there is nothing to reclaim.

Coach travel is listed as a zero-rated essential service, meaning that there should be no VAT charge when travelling via coach. However, additional extras, such as catering or entertainment services in action whilst on board are VAT registered and you will be expected to pay the additional charge of 20% for these services. This is the same amongst all other forms of domestic passenger transport which can be used to carry 10 or more people at a time.

If you would like to find out more about the costs of coach travel with City Circle , get in touch with our friendly bookings team who will be happy to assist and advise you in regard to any future bookings. Whether you are based in the UK or Scotland, we have a happy and helpful team waiting to assist you with any coach travel queries. Call our London branch on 020 8561 2112 or our Edinburgh branch on 0131 333 2700 . You can also email us at [email protected] and we will respond to your query within 24 hours.

Contact City Circle

Contact City Circle and discuss your requirements with our team to shape your perfect journey.

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Is there VAT on trains?

Tools & Tips

Is there VAT on train tickets? Don’t get derailed by hidden costs

Is there VAT on train tickets? Like all of life’s great questions, the answer is not as simple as it first appears. Value Added Tax rates on expenses such as train tickets and train travel is usually zero percent. 

But there’s a big difference between zero-rated and being exempt from VAT taxation. 

Keep reading to learn more about Value Added Tax on train travel, other forms of public transportation and how to account for VAT .

Content overview

Are train tickets subject to VAT in the UK?

Is there vat on public transportation in the uk, is there vat on other forms of transportation in the uk, how do vat refunds work for travel expenses, how to account for vat, pleo and train tickets a match made in heaven .

Train tickets in the UK fall under the zero-rated category. This means as a business you need to keep track of the 0% VAT you’re paying on train travel in your VAT returns. 

This is different from being exempt from VAT. Unlike exempt items, like postage stamps , which the government considers as entirely outside the scope of VAT. The advantage of zero rating is that businesses can claim back VAT on related purchases, benefiting their cash flow , without having to charge their customers extra. 

Reclaiming VAT on zero-rated supplies is what makes zero percent VAT such a favourable tax rate. You can claim all the benefits without the drawback of charging your customers extra.

Domestic UK transport is usually 0% VAT so long as the vehicle, ship or aircraft has at least ten seats, including those for the driver and crew.

This might look like: 

  • Pleasure cruises
  • Cliff lifts
  • Excursions by coach or train (including steam railways)
  • Horse-drawn buses
  • Mystery coach or boat trips
  • Sightseeing tours
  • The transport element of park-and-ride schemes designed to reduce traffic congestion in city centres 
But there are some exceptions to this rule, which often focus on whether the transport you’re supplying is to an event, experience or entertainment that you also own. In which case you’ll need to charge the standard rate of VAT on the transport.

According to HMRC’s website , this would look like:

  • Transport services when they’re included in the admission price to a place of entertainment, historic or cultural interest like a theme park or museum.
  • The use of any vehicle to, from or within a place of entertainment, historic or cultural interest, if the transport and admission are supplied by the same or by connected persons
  • Transport in any motor vehicle between a car park or its vicinity and an airport passenger terminal or its vicinity, when the car parking facilities are supplied by the same or connected persons
  • Flights for entertainment or the experience of flying and not primarily to transport people from one place to another

Usually, passenger transport in a vehicle that can only accommodate less than ten passengers is subject to VAT at the standard rate . The standard rate of VAT in the UK is 20%.

More than ten seats: Probably zero-rated. Less than ten seats: Probably the standard rate. But let's take a closer look.

Is there VAT on Uber and taxis?

VAT on trains

Yes, there is usually VAT on taxi fares at the standard rate unless the taxi driver is self-employed and not registered for VAT. So it’s always worth asking for a VAT receipt.

Bear in mind that most Uber drivers are self-employed and earn under the VAT threshold. So you’re less likely to get any sort of VAT return through Uber, whereas lots of taxi drivers work for larger firms that will have to charge VAT.

You’ll also be charged VAT on other parts of a taxi journey like:

  • Waiting time
  • Administration charges

If you give a tip to a taxi or Uber driver this is not regarded as payment for a supply, so is outside the scope of VAT.

Is there VAT on ferry travel?

So long as the ferry in question can carry more than ten people at a time, they are usually zero-rated for VAT purposes.

There is an exception to this rule for boat rides to, from, or within a place of entertainment or cultural interest. In these cases, the tickets are subject to standard-rate VAT rates. Ferries, canal boat trips, and similar boat excursions that do not have additional facilities and take place on the open sea or other waterways accessible to the public are zero-rated for VAT.

Is there VAT on buses?

VAT rates for buses are just like train tickets and other forms of public transport, zero-rated. Any travel expenses relating to a bus journey must be entered as zero-rated in your accounting software, and not exempt.

But remember in scenarios where the cost of bus fare is included with the right of admission to a place of entertainment or provided by the same provider then it is standard rate VAT.

Is there VAT on coaches?

Coach tickets do not have VAT added to their price because coach travel is considered an essential service that is zero-rated for VAT. However, certain things you buy during a coach journey, like onboard food and entertainment, may have VAT included in their cost.

Is there VAT on flights?

Public flights in the UK are VAT-free, so you don't have to pay or charge VAT on a flight ticket, but they’re not complete tax exemptions. You are subject to Air Passenger Duty (APD) that airlines include in the ticket pricing. 

The amount of APD taxation depends on how far you're flying and the class you choose. Domestic flights are taxed for both the outbound and return trips, while international flights are only taxed on the outbound leg from the UK. Unlike VAT, you can't reclaim APD, except when you book a flight but end up not using it. In that case, you can reclaim the APD from the airline by filling out a form. 

Private flights with less than ten passengers, or pleasure flights that are designed for an experience rather than transportation, are an exception and still subject to the standard 20% VAT rate.

VAT travel refunds

Ultimately businesses claim all VAT refunds for travel expenses by completing the appropriate sections on their VAT return. If the amount of VAT you’re claiming exceeds the amount of VAT you owe, then the government will pay you back the difference in the form of a VAT refund. 

In practice, this looks like:

  • Making sure you’re VAT registered .
  • Ensuring you have valid VAT invoices for all your postage expenses.
  • Keeping accurate records of your input VAT. 
  • Filing your VAT returns on time and including postage costs.

You’ll then receive a VAT refund that includes VAT charged as part of travel expenses if you’ve shelled out more on VAT for things you’ve had to buy as a business, versus things you’ve sold as a business.

Remember that to be eligible for a refund you must meet all the necessary VAT compliance rules and regulations. HMRC may review your VAT refund claim, and request additional documentation or information to support your claim. So it's essential to maintain accurate records and be prepared to provide any relevant documentation.

If you register for VAT, there are a few different VAT accounting schemes you can use to go about telling the government how much you owe them and they owe you:

  • Standard VAT accounting means you track purchases, sales, and VAT amounts, paying or claiming back based on invoice dates every quarter.
  • The Flat Rate Scheme simplifies things, using a percentage of your annual turnover to calculate VAT. 
  • Cash Accounting is similar to standard VAT accounting but everything is based on the payment date, not the invoice date. 
  • Annual Accounting is for those who prefer filing VAT returns once a year and paying based on invoices. 

What’s best for you and your business will depend on:

  • Your cash flow
  • How much VAT you pay out and get paid
  • How large the finance team is in your organisation.

Managing expenses related to travel can be a hassle, especially when it comes to understanding and managing VAT. Pleo can help you:

  • Centralise expense data
  • Simplify expense reimbursement
  • Automate receipts for Tfl journeys  

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Is there VAT on train tickets? (and other common VAT questions)

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VAT: what can you claim?

VAT is a tax charged on a range of goods and services that can be purchased for use by a business. If your business is registered for VAT , you can often reclaim this tax as a refund from HMRC by filing a VAT return .

VAT is charged at different rates for different products and services and you can only reclaim what you pay for. Most of the time this means you can reclaim VAT at the standard rate (20% of the cost of the product or service) or at the reduced rate (5%). However, while VAT technically exists on zero-rated products it is charged at 0% - so you don’t pay anything extra and as a result can’t claim anything back!

VAT is one of the most complicated areas of the UK tax system and as a small business owner you might often be left scratching your head over what items are exempt from VAT and what you can claim back. If you’re struggling to figure out what goods and services are exempt from VAT (and therefore what you can and can’t claim VAT back on), this guide will help.

Jump to a section or read on to learn more:

1. Can you claim VAT back on travel?

2. Can you claim VAT back on food and drink?

3. Can you claim VAT back on property?

4. Other common VAT questions

Can you claim VAT back on travel?

Train tickets.

No - train tickets are zero-rated for VAT so you can’t claim anything back.

No - like train tickets and most public transport costs, bus fares are zero-rated for VAT so you can’t reclaim anything on them.

Yes - you can usually claim VAT on taxi fares at the standard rate (20%) unless the taxi driver is self-employed and not registered for VAT - always ask for a VAT receipt. It’s worth noting that the majority of Uber drivers are self-employed and earn under the VAT threshold, so you can’t usually reclaim VAT on Uber fares.

Fuel and mileage

Yes - VAT is charged and can usually be claimed on petrol and diesel at the standard rate of 20% for business travel. If your accounts come under investigation from HMRC , you may be asked to provide a travel log to prove the journey was business related. The log should include:

  • where the journey started and ended, including postcodes
  • who you visited and why
  • the date of the journey

Mileage for business journeys can also be claimed as an expense; you can find out more in our guide to motor expenses . If you’re claiming a mileage allowance rather than the actual costs of your journey, you can only reclaim VAT on the fuel element of the mileage allowance.

Flights/air travel

No - air travel is zero-rated for VAT so you can’t claim anything back.

Car parking

Maybe - street parking is exempt from VAT so you can’t claim back VAT on charges from a parking meter. Private car parks, however, may charge VAT if the car park business is VAT-registered, so you should always check your receipt for a VAT number. If there’s a VAT number on your receipt you should be able to reclaim VAT on parking charges.

Car hire/leasing

Yes - if you hire or lease a car then you can usually reclaim at least 50% of the VAT on the hire fees. You may be able to reclaim 100% of the VAT charge if the car is only used for business purposes and is not available for private use.

Commercial vehicles/company cars

Maybe - you can sometimes reclaim the VAT for buying a car if you use it exclusively for business purposes. HMRC is strict about this, so reclaiming VAT on a car can be a challenge unless in certain circumstances, such as for a taxi or a driving school car. VAT is charged at the standard rate of 20% for almost all new cars and vehicles but this rate may differ for second-hand purchases (see below).

You may also be able to reclaim VAT on a commercial vehicle if it is used exclusively for business purposes. Commercial vehicles include tractors, vans and lorries but you may also be able to reclaim VAT on motorcycles, motorhomes, combi vans and car-derived vans if they are used entirely for business purposes.

Congestion charge

No - as statutory fees, such as the London congestion charge, are outside the scope of UK VAT, you cannot reclaim VAT on them.

Vehicle insurance

No - vehicle insurance is exempt from VAT so you can’t claim anything back.

Second-hand cars

Maybe - cars that are bought and sold privately (i.e. by anyone outside the motor trade), are outside the scope of VAT. However, if a car is bought from a VAT-registered dealership then the tax may apply. The rate of VAT applied may vary due to The Margin Scheme , so it’s important to check your receipt to see how much you’ve been charged.

Maybe - MOTs are outside the scope of VAT, provided that the cost does not exceed the statutory maximum. Any costs over and above the statutory maximum should be expected to be standard-rated for VAT.

Vehicle road tax

No - UK road tax is outside the scope of VAT.

Can you claim VAT back on food and drink?

Maybe - a jar of coffee bought from a shop is zero-rated for VAT, so you can’t claim anything back. However, coffee that is bought as a hot beverage (i.e. from a cafe, restaurant or takeaway) is standard rated at 20%, but you can’t reclaim this VAT if you bought the coffee for the purpose of business entertaining .

No - milk (including soya, rice and coconut milk) is zero-rated for VAT, therefore you can’t claim anything back. This also extends to flavoured milk drinks, including milkshakes.

No - cakes are zero-rated for VAT, therefore you can’t claim anything back. Even if a cake is still warm when it’s sold, it remains zero-rated as it’s not sold with the intention of being eaten hot. If you go ahead and eat it before it cools we promise not to tell!

Bottled water

Yes - bottled water is taxed at the standard rate of 20% for VAT.

Maybe - biscuits are zero-rated for VAT unless they are wholly or partially coated in chocolate, in which case they are charged at the standard rate of 20%.

Yes - chocolate bars, including diabetic chocolate, are standard-rated for VAT at 20%.

Yes - alcoholic beverages (including beer, cider, wine, spirits and liqueurs) are standard-rated for VAT at 20%. Again beware that you can’t reclaim VAT on alcohol bought for the purpose of business entertaining .

Maybe - shop-bought sandwiches, such as those sold in supermarkets, are zero-rated for VAT, so you can’t claim anything back.

Cold sandwiches bought in an eatery such as a cafe or sandwich outlet are zero-rated if they are not consumed on the premises. However, they are charged at the standard rate of 20% if they are consumed on the premises. This is why ‘eat-in’ and ‘takeaway’ prices often differ in cafes.

Hot sandwiches are charged at the standard rate of 20% wherever you choose to eat them.

Restaurant food

Maybe - food purchased and consumed in a restaurant is usually charged at the standard rate of VAT (20%) regardless of whether it’s hot or cold. One exception to this rule is if you buy cold food from a restaurant but don’t eat it on the premises. Again beware that you can’t reclaim VAT on meals bought for the purpose of business entertaining .

Reclaiming VAT on food and drink

In order to claim any VAT on food and drink, HMRC will have to be satisfied that it qualifies as a reasonable business cost - which can be tricky! Our guide to claiming expenses for the cost of food and drink has more information on this topic, but it’s always wise to check with your accountant before claiming any tax.

Can you claim VAT back on property?

Vat on building work and renovations.

Maybe - VAT for most work on houses and flats by builders, plumbers, plasterers, carpenters and similar trades is charged at the standard rate of 20%.

However, building work for a new home or for aiding people with disabilities may be zero-rated for VAT.

Building a new home

Maybe - when building a new home, VAT is likely to be charged on the supply of materials only. However the supply of labour or the joint supply of labour and materials is likely to be zero-rated, so you won’t be able to claim anything back.

You can apply to HMRC for a VAT refund on building materials if you are building a new home or converting an existing non-residential property into a home. This also applies to non-profit communal residences such as hospices. You must apply to HMRC for this refund within three months of completing the work to be eligible.

Estate agent fees

Yes - estate agent fees are charged at the standard rate of 20%. Can you claim VAT on amenities?

Maybe - water supplied to households and most premises is zero-rated for VAT, so you can’t claim anything back. Some businesses in the manufacturing, construction and engineering sectors may be required to pay VAT at the standard rate of 20% for water.

Electricity bills

Yes - VAT is charged at the reduced rate of 5% for the supply of electricity to domestic properties or for non-business use by a charity. Electricity supply for business use is usually charged at the standard rate of 20%.

Yes - VAT is charged at the reduced rate of 5% for the supply of gas to domestic properties or for non-business use by a charity. Gas supply for business use is usually charged at the standard rate of 20%.

Other common VAT questions

Can you claim vat on insurance.

No - insurance is largely exempt from VAT and doesn’t incur any charges beyond Insurance Premium Tax (which is different from VAT), so you can’t claim anything back.

Can you reclaim VAT for bad debts?

Yes - you can reclaim the VAT that you’ve paid HMRC but have not received from a customer if it’s a ‘bad debt’ (i.e. one you do not expect to be paid). To qualify for the relief:

  • the debt must be between six and 54 months old
  • you must not have sold the debt on
  • you must not have charged more than the normal price for the invoice item on which the debt has been incurred

Can you claim VAT on newspapers?

No - newspapers are zero-rated for VAT so you can’t claim anything back.

Can you claim VAT on sales to non-EU countries?

No - VAT is a tax on goods used in the EU. If goods are exported outside the EU they are zero-rated for VAT.

Can you claim VAT on charitable donations?

No - voluntary donations to charity are outside the scope of UK VAT, so you can’t claim anything back.

Can you claim VAT on stationery?

Yes - stationery is usually standard-rated for VAT at 20%.

Can you claim VAT on batteries?

Yes - batteries are usually charged at the standard rate of 20%. Certain batteries can be charged at the reduced rate of 5% when sold alongside a solar photovoltaic system .

Accounting for VAT in FreeAgent

When explaining bank transactions in FreeAgent, you can select 'Auto' and the software will automatically apply the relevant rate of VAT for the category you're allocating the transaction to. This means that if you know a payment is for travel, you often don't have to worry about knowing the correct rate of VAT off the top of your head. If you do know the correct rate of VAT, you can also select this within the software!

Find out more about online VAT filing with FreeAgent.

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Disclaimer: The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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Tour Operators' Margin Scheme (TOMS VAT)

A GUIDE TO THE TOUR OPERATORS MARGIN SCHEME FOR VAT

I am an independent accountant specialising in the Tour Operators’ Margin Scheme and am well known in the travel trade and HMRC. Previously I was a tax partner in KPMG.

I have often been asked by clients for some notes on TOMS so I have written this guide. It should be read in conjunction with HMRC Notice 709/5.

What is TOMS? Suppose you pay a hotel inParis £100 for accommodation and sell it to a customer for £120. You cannot reclaim the input tax in the £100 without registering in France. You do not want to pay output tax on £120 or your margin will disappear. The solution is to do nothing in France and pay output tax on £20 in theUK.

Unfortunately TOMS has been made unnecessarily complicated so it is misunderstood and disliked.

One result is that it is easy to pay too much TOMS. In my experience, many operators overpay TOMS and the scope for repayment claims should not be underestimated.

TOMS in one page

Introduction, the annual calculation, the provisional percentage and annual adjustment, the 1996 increase, vat on margin on eu transport, inhouse supplies, non eu destinations, worldwide or eu only method, supplies to other businesses, other special situations, notice 709/5 and further reading.

Appendices in Excel available from my website

Does TOMS apply to this transaction? See flowchart:

http://www.pooley.co.uk/TOMS_flowchart.pdf

Excel spreadsheet example showing:

  • a typical P&L a/c
  • the derivation of the TOMS numbers from the P&L a/c
  • the resulting annual TOMS calculation
  • the margin reconciliation
  • `the Newco mark up calculation and
  • how to calculate the provisional payments next year

http://www.pooley.co.uk/toms_notes_excel.pdf

These notes are no substitute for advice on a particular situation. No liability can be accepted for action taken or not taken on these notes.

Copyright MHA MacIntyre Hudson 2020

1 You should use TOMS if you buy in and resell accommodation, passenger transport, car hire, trips/excursions, guides or airport lounges as principal to a consumer.  TOMS is better than registering for VAT in every country in which you operate.

2 TOMS is a year-end tax calculation. Think of it like a corporation tax computation. It makes you pay UK VAT on the margin on EU destinations. You cannot reclaimUKor foreign input VAT on the corresponding costs of sale so the overall effect is that you pay VAT on the selling price of EU accommodation etc.

3 The margin apportioned to non EU destinations is not liable to tax. Example:

This apportionment pro rata cost is fundamental to TOMS however unrealistic it may be.

4 Compare with payments on account and adjust in the first return in the next year:

5 The annual calculation works out the standard-rated margin as a percentage of sales. You apply this percentage to departures to estimate your liability in the next year:

6 The margin apportioned to EU passenger transport became taxable in 1996. The typical increase in the TOMS liability was about 50%. You can avoid this increase by setting up a transport company with its own VAT number, TRA ATOL etc. It buys the transport and sells it to the tour operator at the price that reduces the TOMS liability to what it would have been under the old rules. HMRC go along with this.

7 The margin on insurance is exempt. Cancellation income is not liable to VAT.

8 There are many special situations eg if you sell to another business, if you make inhouse supplies or if you supply a mixture of EU and non EU holidays.

9 Check that the margin in your calculation reconciles to the profit in the accounts.

10 TOMS in two words: Ask Martin.

1 The Tour Operators’ Margin Scheme for VAT (TOMS) is not that bad. You have to do a complicated calculation at the year-end but it is no worse than a corporation tax computation. TOMS is just more specialised and therefore poorly understood.

2 Why do we need TOMS? Suppose a UK tour operator buys accommodation in France from a hotel and flights from an airline and sells a package holiday. The operator is selling accommodation in France and under general principles of VAT should register in France, collect output TVA on the selling price of the accommodation and deduct the input TVA paid to the hotel. But what is the selling price of the accommodation? How much VAT should the operator pay? Where? And what about the flights?

3 TOMS is an EU wide simplification measure to avoid these problems and to protect tour operators from having to register in other member states of the EU. The rationale is clear for cross border holidays but TOMS is mandatory even if the holiday is UK only and even if the supply is not a holiday but eg a conference.

4 Under TOMS, tour operators pay output VAT on their margin not on their selling price and they pay it in the country in which they are established not in the destination. They do not register for VAT in the destination and cannot deduct input VAT on the corresponding direct costs, even if the destination is in the UK. In effect they pay VAT on the selling price and VAT has achieved its objective of taxing consumption.

5 The UK uses a cost based apportionment system relying on the annual accounts. The margin apportioned to EU destinations is standard-rated.

6 Note that the sales and cost of sales are both VAT inclusive so the rate of VAT is not 20% but 1/6 (20%/120%) (previously 7/47 ie 17.5%/117.5%).

7 TOMS is a cost based apportionment and assumes that the tour operator makes the same percentage margin on all products. If margins differ significantly between products, this assumption can affect the liability. For example:

  • If the percentage margins inside and outside the EU are different when it may, rarely, be beneficial to elect to use the EU only method (see para 72).
  • Where a mixture of supplies with different liabilities is sold in a package. For example if you supply bought in transport with inhouse accommodation.

8 This arbitrary approach has advantages, in particular most operators pay less because they include non EU destinations, but it makes it more difficult to see what is going on. If TOMS were calculated transaction by transaction it would require more detailed record keeping but the VAT on each transaction would be easy to understand.

9 For a fuller understanding of TOMS you should read EU law Articles 306-310 of the Principal VAT Directive Dir 2006/112 (reproduced at para 122 below). As usual, EU legislation is clearer than UK legislation so you should read it before you read UK law (and references to Articles in these notes are to the Principal VAT Directive). You could then read The VAT (Tour Operators) Order 1987 (SI 1987/1806) but for most the starting point will be HMRC Notice 709/5/2009 (last issued in 2009).  TOMS is essentially as it was when it was first introduced in 1988 but there were changes in 1996 (the extension of TOMS to the margin on EU transport – see para 40) and the treatment of supplies to other businesses changed in 1996, 1998 and 2010 (see para 83).

10 There has long been discussion of possible reform of TOMS by the EU but until there is some agreement there will be no change. The most important change is likely to be that the transport company scheme would cease to work. This would hurt small operators. Meanwhile the business world has changed and TOMS is still struggling to cope with dot.com operators and the market changes flowing from low cost carriers. . The changes to B2B supplies in 2010 are also proving problematic.

When does TOMS apply?

11 You decide the VAT treatment of every transaction on its merits. TOMS applies to a transaction if and only if (1) you are making one or more margin scheme supplies (see para 13 below) and (2) you do so as principal (not as agent: para 14) and (3) you buy in these supplies (not inhouse: para 15) and (4) you sell these supplies to a consumer (not wholesale: para 16).  See flowchart at http://www.pooley.co.uk/TOMS_flowchart.pdf

12 TOMS applies even if a margin scheme supply is sold singly ie there is no need for there to be a package.  TOMS applies to UK destinations just as much as to destinations in other countries, EU or non EU. When you have identified all the transactions that are in TOMS you aggregate them and do one annual calculation.  Many tour operators will find all their sales are in TOMS so they just take totals from the P&L.

13 TOMS only applies to a transaction when the transaction includes one or more margin scheme supplies. HMRC say that accommodation, passenger transport, hire of a means of transport, use of special lounges at airports, trips or excursions and services of tour guides always fall into this category. Other supplies, such as catering, theatre tickets and sports facilities, may also fall in TOMS if they are bought in and sold on as part of a single transaction with one or more of the supplies listed above.

14 TOMS only applies to a transaction where you act as a principal ie not when you act as a disclosed agent. Agency is a particularly difficult area and if there is any doubt about the position, take proper advice. See para 97 below for agency in more detail.

15 TOMS only applies to bought in supplies as opposed to inhouse supplies.  Inhouse supplies are supplies from your own resources.  If for example you own coaches, employ drivers, pay hotels and sell coach tours, the hotel is bought in but the coach transport is an inhouse supply.  You include the whole transaction in TOMS because it includes a TOMS supply. If you supply coach only and use your own coaches, it is not in TOMS and is normal passenger transport.  Conversely if you supply coach only and the coach is bought in, it is in TOMS. See para 57 for more on inhouse supplies.

16 TOMS only applies to supplies to the consumer ie traveller.  If you sell to another business for resale by them, eg your client is another tour operator, your client is not the traveller and your supply is wholesale and is not in TOMS.  Normal VAT rules apply instead. If you are selling through a travel agent, you will normally be selling to the traveller though these traditional lines are increasingly blurred.  If you sell to another business and they use it for their staff or to entertain clients, your client is seen as the consumer and the transaction is in TOMS.  Until 31 December 2009 there were various opt outs and opt ins in relation to supplies to other businesses but now there is no choice.

17 TOMS is designed for tour operators providing holidays but many other businesses are also caught by TOMS eg travel agents acting as principals, seat only operators, organisers of sporting events, training courses, incentive travel or conferences and hotels supplying additional services such as car hire, transport or excursions.

How does TOMS differ from normal VAT rules?

18 Under normal VAT rules, the value of a supply is the amount the customer pays but under TOMS it is the margin. So a normal taxpayer charges customers VAT on sales (output tax), accounts to HMRC for the output tax, pays suppliers VAT on purchases (input tax) and reclaims the input tax. Under TOMS, the taxpayer accounts to HMRC for output tax on the margin. Input tax on costs of sales is not deductible. Input tax on overheads is deductible as is input tax on inhouse costs. The margin is estimated monthly or quarterly and calculated precisely once a year. When considering when to register, a tour operator should look at the margin not at the gross sales (para 4.1 of 709/5/2009).

19 Under normal VAT rules, the time of supply or tax point (which determines when the output tax is payable) is usually when an invoice is issued or payment received. Under TOMS, the normal time of supply is the departure date of the holiday.

20 Under normal VAT rules, the place of supply (which determines which government is entitled to collect the output tax) for accommodation is where the property is located (Dir 2006/112, Art 47), for transport where it takes place proportionate to the distances covered (Art 48), for car hire where it is put at the disposal of the customer (Art 56) and for catering where it is physically carried out (Art 55) (unless on a ship).  So most tour operators’ supplies would be taxable in the destination country if there were no special scheme for them.  Under TOMS, the place of supply is instead where the operator is established.  So that is one VAT return to complete instead of up to 28.

21 Under normal VAT rules, the liability of the supply (rate of output tax) depends on the nature of the supply. Under TOMS, the liability depends on the destination. The margin on non EU holidays is zero-rated. In addition, under the transport company scheme, in effect the liability depends on the nature of the underlying cost (see para 45).

22 The UK has implemented TOMS as an annual cost based apportionment calculation. It takes the gross profit in the statutory accounts and apportions it pro rata to the costs of sale. Depending on the nature of the cost of sale, the margin apportioned to it is either standard-rated or zero-rated.

23 The margin apportioned to non EU destinations is zero-rated. This gives non EU destinations a price advantage over EU destinations and is a fundamental flaw: an EU designed tax should not disadvantage EU destinations against the rest of the world.  Just think of what this does for employment in the EU and for our carbon footprint.

24 The margin apportioned to EU accommodation is standard-rated. Similarly for EU meals, car hire, excursions etc.

25 The margin on transport to EU destinations is standard-rated but was zero-rated under UK law until 1996. The change was forced on the UK to bring it into line with EU law. HMRC have approved methods to mitigate this increase and most tour operators with EU programmes have set up transport companies to do so. See para 45 below.

26 Costs are described by TOMS as zero-rated when the margin apportioned to those costs is zero-rated and as standard-rated when the margin apportioned to them is standard-rated.  Do not confuse this with the rate of VAT charged by the supplier!

27 The annual calculation is in a standard layout which must be followed. HMRC Leaflet 709/5/1988 used algebra (A, B, C etc). Subsequent Notices 709/5 use numbered steps instead though the logic is the same. Algebra is easier to use and persists in HMRC Information Sheets so a hybrid is used in these notes: A(1) means A in 1988 algebra and step 1 in the latest Notice. The numbering in the Notices has changed over the years while the algebra has remained the same which is another reason for preferring algebra.

28 A(1) = sales, before deducting agents’ commissions or TOMS VAT. TOMS VAT is normally deducted from turnover in the accounts and agents’ commissions are sometimes also deducted from turnover. The income for TOMS is the gross amount paid by travellers including surcharges for payment by credit card or for changes to the holiday.  The income should be reduced by deducting insurance at selling price, any retained deposits or cancellation income and compensation payments.

29 The other letters are used as follows:

B(2) = standard-rated costs, eg EU accommodation + EU transport from January 1996.

C(3) = zero-rated costs, eg non EU costs + EU transport to December 1995.

D(4) = inhouse standard-rated costs, eg an owned hotel in the UK.

E(5) = inhouse zero-rated costs, eg your own coaching.

E(6) = inhouse exempt costs, eg your own EFL operation.

F(7) = inhouse non UK costs, eg your own hotel in France.

B(8) = agency costs where the margin is not readily identifiable but is standard-rated.

C(9) = agency costs where the margin is not readily identifiable and not standard-rated.

G(10) = total cost of sales eg B+C+D+E+F or steps 2 through 9.

Most operators only need three numbers (A(1), B(2) and C(3)) and most examples in this note use only these numbers. Inhouse supplies (D(4), E(5&6) & F(7)) and agency costs (B(8) & C(9)) are unusual.

30 Example: a typical annual calculation without inhouse supplies

31 See http://www.pooley.co.uk/toms_notes_excel.pdf for an Excel spreadsheet showing how the annual calculation relates to the accounts and including inhouse supplies.

32 It is important to check the annual calculation by reconciling the TOMS margin to the gross profit in the accounts. The main differences are usually travel agents` commission if deducted in arriving at gross profit in the accounts (agents’ commission is not deductible in TOMS: instead operators can reclaim the input VAT on the commission, which is better), the insurance commission (it is exempt so insurance is excluded from income and costs in TOMS), cancellation income and the TOMS which is normally deducted from turnover in the accounts.  See example in my spreadsheet.

33 The rest of the calculation is used to derive sales values etc and to show intervening stages, but is not needed to work out the annual liability. For readers who like algebra, the annual liability is K(20) = (1/6) x B(2) x (A(1)/G(10)-1), assuming there are no standard-rated UK inhouse supplies ie assuming D(4) = 0. If there are, such as a hotel owned in the UK, the additional liability is P(21) = (1/6) x D(4) x A(1)/G(10).

34 Inhouse supplies are from January 2010 to be taxed on their market value, where possible, instead of at cost plus average margin as determined by the TOMS calculation. Accordingly there is an additional market value calculation with steps numbered M1 to M5.  See para 67.  In practice market values are rarely available and the cost plus method is still used most of the time.

35 The annual calculation is only carried out at the end of the year so operators have to estimate the output tax in the intervening returns. When they complete the annual calculation they work out a provisional percentage. During the following year they apply the provisional percentage to the sales value of departures in each quarter or month so the provisional standard-rated margin is the same proportion of sales as the previous year. Apply the VAT fraction to this margin to get the provisional TOMS. When the VAT rate changes, as it did at 30 November 2008, 31 December 2009 & 3 January 2011, the provisional TOMS payable is the VAT fraction based on the rate of VAT at the date of departure times the provisional margin.

36 When the operator completes the next annual calculation and compares the liability with the provisional payments they will have underpaid or overpaid and must adjust the difference. This annual adjustment is to be made in the first return following the year end. In most cases this gives 4 months to do the calculations. For example if an operator prepares accounts to 31 December 2013 and makes quarterly VAT returns to the same date, the annual adjustment based on the 2013 accounts should be made in the return for March 2014 which is due by 30 April 2014.

37 Alternatively, if the operator makes monthly returns, the 2013 adjustment belongs in the January 2014 return. This gives 2 months to complete the calculation which may not be long enough in which case the operator should make an adjustment in the January return based on the latest information, eg draft accounts, and make any further adjustment when the accounts are finalised. The adjustment belongs in the January 2014 return so if any later adjustment is more than the de minimis, normally £10,000, it should be disclosed separately to HMRC.  Late adjustments are to be avoided if at all possible.  If you have underpaid, HMRC will charge interest and possibly penalties.  If you have overpaid, you may have trouble persuading HMRC to process the adjustment, they may charge penalties and meanwhile you are out of pocket.

38 If the operator makes quarterly returns but they do not coincide with the year end, the period available will be 2 or 3 months eg if the year-end is 31 December 2013 and a return ends on 31 February 2014, the 2013 adjustment should go in that return.  If your VAT returns do not coincide with the year end, log onto your VAT account and bring them into line.  This makes the calculations easier and gives you longer to do them. The annual adjustment for the previous year should be excluded from the payments for the current year when they are compared with the final liability.

39 Going through the usual boxes on the tour operator’s VAT return:

  • Box 1 = VAT fraction x provisional percentage x sales departures in the period + annual adjustment, if it is the first return after the year end
  • Box 4 = input tax on agents’ commissions and other overheads, not cost of sales
  • Box 6 = estimated margin, not sales
  • Box 7 = overheads, not cost of sales.

Inhouse supplies are more complicated. For a complete analysis, see the third work sheet in the spreadsheet available with these notes.

40 The treatment of EU transport changed in 1996. Until 31 December 1995, the margin apportioned to EU transport was zero-rated (the old rules). From January 1996, the margin apportioned to EU transport is standard-rated (the new rules).

41 Example: the 1996 increase

42 The effect of standard-rating the margin on EU transport depends on the programme. An operator supplying no EU transport was not affected eg an accommodation only operator. For a typical EU programme of transport and accommodation it increased the liability by about 50%.

43 HMRC agreed three ways of reducing the impact of the 1996 change. Most operators should find it possible to use one of these to eliminate the additional VAT. The three options for mitigating the 1996 increase are as follows:

  • Use a transport company. See para 45.
  • Act as agent for the transport supplier. See para 52.
  • Convert bought in flights to inhouse transport.

44 The first method is used by most tour operators selling programmes including EU flights. The second is particularly suitable to an operator who sells packages including cross channel ferries but not much in the way of flights. The third is rarely applicable. See HMRC Information Sheet 03/96 (no longer on HMRC website but copy available from me).  The first two are discussed below.

Using a transport company to mitigate the 1996 increase

45 The idea is to set up a new company ("Newco") to buy the transport from the coach company, airline or other supplier, sell it to the tour operator (“Oldco”) at a profit and so reduce Oldco’s TOMS liability. HMRC accept Newco is wholesaling zero-rated transport and has no TOMS liability. See HMRC Information Sheet 1/97 (no longer on HMRC website but copy available from me). However, pressure from the EU may force the UK to withdraw this facility.

46 The more margin earned in Newco the less TOMS is payable in Oldco. HMRC say that they will not attack the Newco mark up provided it does not reduce the TOMS liability below the level that would have applied under the old rules. It is therefore necessary to do the calculation two ways each year, under the old rules and the new rules, and to keep a record of the costs before any Newco mark up.  In practice, if you are using the transport company scheme it is much easier to do all the calculations under the old rules and confine the transport mark up to the year end process.

47 The mark up can be found by trial and error or formula. Use my spreadsheet at http://www.pooley.co.uk/toms_notes_excel.pdf or my algebra published in Information Sheet 1/97. Using the simpler formula in Information Sheets 1/97 and 2/96 will give the wrong answer in certain cases ie if D(4) is not zero. Check you get the same liability under the old rules with no Newco mark up and under the new rules with a mark up.

48 Example:

* = A 56% mark up on transport in Newco ensures the liability under the new rules equals what it would have been under old rules. The mark up varies with the results but not with the rate of VAT.  See the example in the spreadsheet on my website.

49 Newco will earn a margin on the transport and can be charged a management charge for services from Oldco to put the margin back where it belongs. HMRC assisted in the design of the transport company scheme and continue to support it. Despite this support, there may be corporation tax implications if there are losses brought forward and there may well be a restriction of small companies’ relief for corporation tax. There may also be bonding and licensing implications but these and other wider tax and commercial implications of using Newco are beyond the scope of these notes.

50 The main points on the transport company are as follows:

  • Newco should be VAT registered and not in a VAT group with Oldco.
  • Newco should have a TRA ATOL (if flights are involved).
  • Airlines and other suppliers should be informed that they are dealing with Newco.
  • Transport suppliers should invoice Newco.
  • Newco and Oldco should draw up a contract for the sale of transport.
  • Non EU transport should normally go through Newco, not just EU transport.
  • The TOMS liability is calculated from the accounts, under the new rules, so the transport mark up must go through the accounts for the saving to be achieved.
  • Any corresponding management charge from Oldco to Newco is liable to VAT.
  • See HMRC Information Sheet 1/97 (no longer on HMRC website but copy available from me).

51 The annual adjustment may or may not be material to the accounts but you should not finalise the accounts until you know the mark up in Newco and you cannot work out the mark up without doing the annual calculation. Therefore optimising the Newco saving depends on doing the annual calculation before you finalise the accounts.

Agency, another solution to the 1996 increase

52 HMRC say that agency supplies are outside TOMS provided:

  • the agency agreement is genuine - in particular, a true agent would not be expected to take any significant commercial risk ie the agent should not commit to buy before selling
  • agents do not act in their own name - an arrangement whereby the principal remains undisclosed to the customer would not satisfy this condition
  • there is documentary evidence to support any agency agreement ie both parties must agree, preferably evidenced in writing, and
  • clear statements are included in the terms and conditions of the contract with the customer that the transport is supplied as agent and naming the principal.

53 HMRC will accept operators act as agent for the transport provider if they satisfy the conditions above. The commission earned is then taxed under general principles, not TOMS, and if it is for arranging transport the commission is usually zero-rated.

54 However, most airlines will not accept that tour operators are acting as their agent when packaging a net fare in a holiday, for bonding reasons. So the agency route to mitigating the 1996 increase is not open to most tour operators selling flights. The agency route is generally used by tour operators selling ferry packages.

55 Where the agency commission is readily identifiable the cost and selling price of the agency supply can be deducted from the accounts totals before the annual calculation is carried out. In practice however, if an operator charges an inclusive price for a mixture of eg ferry transport sold as agent and accommodation sold as principal, it is not clear how much of the selling price is for the ferry so this adjustment cannot be made. If the ferry agency commission is not readily identifiable, the cost should be included in zero-rated costs in the annual calculation after 1996 as in 1995 and earlier years. See Information Sheet 4/96 (no longer on HMRC website but copy available from me) and Notice 709/5/2009 para 6.7. The cost of agency supplies for which the commission is not readily identifiable is included at step 8 (B) if the commission is standard-rated or at step 9 (C) if the commission is not liable to UK VAT.

56 Adopting an agency structure will fundamentally change the operator’s contractual relationships with customers and suppliers. There are wider commercial and legal implications and it is not to be done lightly.  Most tour operators selling flights will not be able to use the agency solution as explained at paragraph 54 above.

57 Inhouse supplies are when you provide the service from your own resources, eg you own coaches & pay the drivers rather than buying in coaching from a coach company.  Or you may run your own ski chalets or your own hotels. In addition, HMRC say that if the operator buys in services but packages them together so that what he sells is different from what he buys, an inhouse supply is being made: see para 65.

58 If a transaction involves inhouse supplies but no bought in supplies, TOMS does not apply to the transaction in question. Normal VAT rules apply instead. Eg a coach operator sells coach holidays but also sells coach only: the latter is passenger transport and is not in TOMS. Or if you sell inhouse coach transport plus admission eg a day trip, TOMS does not apply to the day trip as there is no bought in margin scheme supply.

59 If a transaction involves both bought in margin scheme supplies and inhouse supplies, it is included in the annual calculation and TOMS works out any VAT due on the inhouse supply.

60 General principles of VAT apply to inhouse supplies rather than TOMS rules. In particular, normal place of supply rules apply so that there is, for example, no UK liability on the selling price apportioned to non UK inhouse accommodation.  Inhouse supplies fall into four categories dealt with in turn below, corresponding to steps 4, 5, 6 and 7 in the calculation.  Following the ECJ decision in MyTravel, from 1 January 2010, where possible inhouse supplies are taxed at market value, under normal rules outside TOMS in effect (see para 67), but in practice many will remain in TOMS and will therefore continue to be valued at cost plus average margin.

61 D(4) If the operator owns and runs a hotel in the UK and includes it in a holiday in TOMS, it is inhouse and the calculation taxes the selling price of the hotel, not the margin. Unless the new market value rules apply, the selling price is assumed to be cost plus margin calculated pro rata. As the full selling price is taxed, input tax attributable to the costs is deductible. The hotel is a standard-rated UK inhouse supply and the costs appear at D(4) in the calculation. Because other figures are VAT inclusive, VAT is added to the VAT exclusive costs (at the normal rate, currently 20%).

62 E(5) If a coach operator provides coaching as part of a holiday in TOMS, it is inhouse and zero-rated. Similarly for airlines and other providers of transport. The operator is seen as acting as a provider of transport rather than buying in and selling on. Unless the new market value rules apply, the selling price is assumed to be cost plus margin calculated pro rata. As the full selling price is taxed, input tax attributable to the costs is deductible. Such transport is a zero-rated UK inhouse supply and the costs appear at E in the calculation. Note that the UK zero-rates coaching supplies but other countries may not. Since the place of supply of transport is where it takes place, coach operators may be required to pay VAT on the distances covered in other countries. This causes coach operators problems. In particular, Germany has tightened up and operators must have a certificate of registration for Mehrwertsteuer before they send coaches to Germany. River cruises similarly and Austria increasingly. This is normal VAT, like the VAT the German hotels charge, is not TOMS, is not deductible and is not contrary to EU law (Art 48: the place of supply is where the transport takes place).

63 E(6) If an operator runs a school teaching EFL (English as a Foreign Language) it is inhouse exempt. Unless the new market value rules apply, the selling price is assumed to be cost plus margin calculated pro rata. As the supply is exempt, input tax attributable to the costs may not be deductible. Partial exemption calculations are needed to determine how much input tax is deductible, assuming the operator is VAT registered.

64 F(7) Where an operator owns and runs eg a hotel in another country and includes this in a holiday in TOMS, the hotel is inhouse and outside the scope of VAT. The operator of the hotel is presumably liable to register in the other country so the income is not taxed in the UK. Unless the new market value rules apply, the selling price is assumed to be cost plus margin calculated pro rata. The hotel is an inhouse supply that is outside the scope of UK VAT, ie treated as zero-rated, and the costs appear at F(7). Add notional VAT to these costs at the local rate applicable if VAT registered locally and accounting for output VAT on the corresponding sales to the overseas authorities.

65 HMRC say that if the operator buys in services but packages them together so that what he sells is different from what he buys, an inhouse supply is being made.  The usual example is a conference organiser. However this category of inhouse supplies is less clear than when the operator owns the resources. In addition, just because a conference is inhouse does not make any associated transport or accommodation inhouse.  The transport and accommodation remain in TOMS (709/5/2009, para 7.13).

66 Unless the new market value rules apply, the selling price is assumed to be cost plus margin calculated pro rata. Depending where the conference takes place the supply may be a standard-rated inhouse supply and the costs appear at step D(4) plus notional VAT (eg 20%) or outside the scope of UK VAT, ie treated as zero-rated, and the costs appear at F(7). Add notional VAT to overseas costs at the rate applicable locally if VAT registered locally and required to pay local output VAT on sales.

Market value

67 When TOMS was introduced in 1988, all inhouse supplies were included in TOMS at cost ie TOMS assumed that the selling price was cost plus the average margin.  Following the ECJ decision in MyTravel the UK was forced to introduce market values and from 31 December 2009 there is a new market value calculation at section 8 of 709/5/2009. See HMRC Brief 27/09. The principle is that the market value of the inhouse supply is deducted from the selling price of the TOMS supplies and taxed under normal rules. In general market value is to be used rather than cost but it may be difficult to identify the market value so many inhouse supplies will continue to fall under the cost plus rules. In MyTravel, the company was selling flights on a seat only basis as well as in package holidays and it was relatively easy to take the market value of the flights from the selling price of the package to get the sales value of the TOMS supply. It remains to be seen how many operators will be able to use market value and HMRC are known to oppose the use of market value by coach tour operators in particular. See below. Any operator with inhouse supplies should take proper advice on their situation.

68 In the Welsh’s Coaches Ltd case, the VAT Tribunal rejected the market values put forward by the company for the coach element of the package holiday, based on prices for similar journeys quoted by National Express. Coach tour operators may also sell private hire or make other coach only supplies but these supplies will rarely be comparable with the coaching included in a tour. For example, a private hire contract is for the supply of a whole coach and the hirer takes any risk that the coach is half empty whereas package holidays are sold seat by seat and the tour operator takes the risk that the holiday does not sell well. The coach operator is unlikely to publish a price at which they would be willing to, for example, pick up an individual from a collection point, take them to the coach depot, drive them to a hotel in Cornwall and back a week later and to provide excursions in the intervening days but no hotel room. National Express will only do the city to city part and will probably charge more than the coach tour operator allows in the costings so that if market values could be established the coach operator would pay less TOMS. This is what you would expect as return follows risk and the coach tour operator takes no risk on hotel rooms and all the risk on the coach going out half empty.

69 Where some inhouse supplies are taxed at market value and some are left in TOMS, the costs left in TOMS must relate to the sales left in TOMS or the calculation will not reflect the margin. So the costs at D (step 4), E (5/6) & F (7) may need to be apportioned between supplies in TOMS and supplies taxed at market value.

70 Other practical problems with inhouse supplies are as follows:

  • Is it beneficial to have a high value (eg zero-rated transport or supplies outside the scope of UK VAT) or a low value (eg UK standard-rated inhouse)? It would be desirable to aim for consistency of approach.
  • The corresponding VAT treatment in other countries: other member states may not use the same criteria as the UK to determine what is inhouse and will invariably use a different method to determine the value of the supply.
  • How to deal with coaching costs when the operator uses the same vehicles for private hire. HMRC say the costs should be apportioned on mileage but this undervalues the transport element. More valuable coaches tend to be bought for tours and may only be used for private hire when not required for tours. In many ways it would be more logical to include private hire in TOMS.
  • How to treat subsidiaries incorporated in foreign countries: typically a ski chalet in France may be owned by a French legal entity.
  • How to deal with local sales eg ski packs sold in resort by a chalet operator: is it fair to tax them under TOMS if they are included in the local VAT return?
  • The addition of notional VAT to inhouse costs (step 7 of section 9 of Notice 709/5/2009): there is more than one rate of VAT in France, for example.

71 After enlargement in 2007, the EU consists of 27 countries: Austria, Belgium, Bulgaria, Cyprus (excl the part under Turkish control), The Czech Republic, Denmark (excl the Faroes), Estonia, Finland (excluding the Åland Islands), France (incl Monaco but excl Guadeloupe, Martinique, Réunion, St Pierre and Miquelon and French Guiana), Germany (excl Busingen and the Isle of Heligoland), Greece (excl Mount Athos), Hungary, Ireland, Italy (excl the communes of Livigno and Campione d’Italia and the Italian waters of Lake Lugano), Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal (incl the Azores and Madeira), Rumania, Slovakia, Slovenia, Spain (incl the Balearic Islands but excl the Canaries, Ceuta & Melilla), Sweden and the UK (incl the Isle of Man). It excludes Norway, the Canaries (though legally part of Spain) and the Channel Isles (though legally part of the UK). Other territories that are excluded but commonly cause confusion include Andorra, Cape Verde, Gibraltar, Greenland, Iceland, Liechtenstein, Montenegro, San Marino and The Vatican City. Croatia is due to join the EU from 1 July 2013.

72 Holidays in non EU destinations are not liable to TOMS. There are two ways to achieve this in the annual calculation. Under the worldwide method, holidays in non EU destinations are zero-rated ie the margin attributed to non EU costs is zero-rated. The calculation uses worldwide sales and costs of sales and assumes the margin is proportional to the costs ie that the same percentage mark up applies in all destinations. The other way to do the calculation is to use only EU income and costs. Holidays in non EU destinations are ignored. Holidays that are enjoyed partly in the EU and partly outside are included in the calculation and the non EU costs are zero-rated. The margin on non EU destinations is generally lower than on EU destinations so the worldwide method usually produces a lower liability than the EU only method. But this is not always so. For example, margins in Turkey have at times been higher than in Greece.

73 Example: EU only or worldwide

In this example the worldwide calculation gives a lower liability. This is normal.

74 Operators can change from one method to the other if they notify HMRC a year in advance. HMRC policy is that you elect to change at one year end but that nothing changes in practice until the following year end eg you continue to use the old provisional percentage and the election to change has no practical effect for a year. Despite this obligation to gamble, it is clear from several test cases that advance notification is a condition of changing from one method to another.

75 If you change from one method to the other, you need to consider the effect on the provisional percentage. If you use the EU only method you have a higher percentage but you apply it to less turnover. When you first change to the EU only method, you will not have an EU only provisional percentage from the previous year unless you do the calculation both ways. You should avoid applying a worldwide percentage to the EU turnover or you will underpay and get an unpleasant surprise when you make the annual adjustment. Similarly when you change back you should avoid applying the EU only percentage to worldwide turnover or you will overpay.

Current rules

76 TOMS is intended primarily to apply to holidays. Holidays are sold to consumers not to businesses. TOMS does not apply to wholesale supplies ie to any transaction whereby a business sells transport, accommodation etc to another business who then sell on. The test case was Norman Allen Group Travel Ltd. It bought in accommodation in France and sold it to a tour operator based in Japan who added flights and sold a package to Japanese holidaymakers. In 1996 the VAT Tribunal decided that TOMS did not apply to Norman Allen’s wholesale sales. There were different approaches in other member states but in principle following the changes in the UK in January 2010 and similar changes in other member states, all member states should be following the same approach as the UK. In practice this remains to be seen, especially in relation to conferences. See HMRC Brief 27/09.

77 Instead normal VAT rules apply to wholesale supplies. The place of supply of accommodation is where the property is located. So if the wholesaler sells UK accommodation it accounts for output VAT and claims input VAT in the normal way. If it sells non UK accommodation it has no UK liability and wholesalers obtained TOMS repayments following the Norman Allen decision in 1996.

78 TOMS applies to sales to other businesses for their consumption eg for their staff or provided to their customers without charge.  So business travel, incentive travel and conferences are often caught by TOMS.  This is a serious problem: the operator cannot reclaim input tax and cannot give the customer a VAT invoice so the customer cannot reclaim VAT. This was covered by a concession until 2010: para 3.3 709/5/2004. HMRC have agreed the bill back scheme, based on agency, for the hotel booking agent sector, but there are significant problems in this area. See HMRC Brief 21/10.

79 Organisers of UK conferences etc may therefore wish to fall outside TOMS and continue to use normal VAT rules after 2009. Ideally organisers would charge their customer a fee for their time and effort and treat payments to hotels etc as a disbursement. Hitherto the customer will have contracted with the organiser but in future the customer would enter into a separate contract direct with the hotel etc. The customer would need a VAT invoice from the hotel satisfying the usual requirements eg showing the customer’s name and address. There is no objection in principle to an organiser paying such bills on behalf of the customer, batching them up and passing them onto the customer together with a summary of the deductible VAT but the organiser must not reclaim the hotel VAT nor issue a VAT invoice for the hotel to the customer.

80 Organiser should beware of attempting to act as the agent of the hotel etc without considering the wider implications. Changing from principal to agent is a fundamental change in the business and not to be undertaken lightly. The terms & conditions and contractual arrangements need to be consistent. If the organiser is acting as the agent of the hotel, the organiser is working for the hotel, not for the customer, and may not be able to truly serve the best interests of the traveller. Think about what happens when you go to an estate agent looking for a house: the agent is working for the vendor, not for you. You may prefer to act as the agent of the buyer and treat the payment to the hotel as a disbursement.

81 If the place of supply is in another country, the wholesaler may be required to register for VAT in that country and if the other country is in the EU, HMRC may report this to the authorities in the other country.

82 The VAT treatment outside the UK is not covered in this note. Following the changes in the UK on 31 December 2009 and similar changes in other member states, wholesalers may be liable to register for VAT in other countries where the property is located, transport takes place etc. Operators making wholesale supplies outside the UK should take advice country by country.  Remember that the whole point of TOMS was to protect tour operators from having to make multiple VAT registrations. This seems to have been forgotten in 2010, which is a pity.

Previous rules

83 The treatment of supplies to other businesses was different until 31 December 2009. See HMRC Brief 27/09. Three special situations benefitted from special rules which have been withdrawn under pressure from the EU:

- Wholesalers who wanted to stay in TOMS: see para 84

- Supplies to other businesses for their consumption: see para 86

- Supplies of UK educational trips to Local Authority schools: see para 88.

There were also changes in 1996 and 1998 after the Norman Allen decision.

84 Some wholesalers wanted to stay in TOMS when HMRC changed the rules for wholesalers in 1996. This might have been because their wholesale sales were only a small part of their operations or because their wholesale sales were in the UK and they did not want to or could not operate normal VAT procedures ie calculate output tax by transaction and obtain and retain tax invoices for all purchases. Or if they bought from unregistered suppliers, eg home stay accommodation, TOMS gave a lower liability. Accordingly, wholesalers were allowed to opt to remain in TOMS, subject to obtaining permission from HMRC. This was a rare scenario. 

85 This concession was withdrawn from 31 December 2009.

86 Supplies such as conferences and business travel, where travel or accommodation is supplied to another business and they do not resell it, fall into TOMS. But under TOMS the operator cannot issue a VAT invoice and the VAT is lost. So para 3.3 of 709/5/2004 allowed such operators by concession to use normal VAT rules instead of TOMS. In the case of UK supplies, HMRC permission was required to opt out so they should have a record.  In the case of supplies elsewhere in the EU, a condition was that the organiser was registered for VAT and accounted for output VAT on sales in the other member state which made it unattractive and the concession was very rarely used for supplies outside the UK. 

87 This concession was withdrawn from 31 December 2009.

88 Local authority schools can reclaim VAT. From January 2010 there are no special rules for supplies to local authority schools: 709/5/2009, para 3.4. Previously tour operators excluded educational UK trips for such schools from TOMS. This change increased the cost to local authorities of educational trips bought from tour operators. Operators need to understand that local authorities may be able to save VAT by going direct to hotels etc. However, some specialist school operators may not fall into TOMS eg if they run their own sites their supplies are equivalent to those of a hotel and they can continue to use normal VAT rules.

Place of supply rules

89 The place of supply determines in which country any particular transaction is liable to VAT. There were changes to the EU wide place of supply rules on 1 January 2010.  From 1 January 2010 the general rule for the place of supply of services distinguishes supplies to consumers from supplies to other businesses. For supplies to consumers, the place of supply remains where the supplier is established. For supplies to other businesses, the place of supply changed to where the customer is established (general rule) and if that is in another member state, the customer has to operate the reverse charge procedure and the supplier has to complete an EC Sales Listing (ESL).

90 The bulk of tour operators’ costs normally comprise transport, accommodation, car hire & restaurants all of which remain taxed in destination under their special place of supply rules. So most costs of most holidays were not affected by the 2010 change but the reverse charge is now the general rule and applies to all costs, except those with special place of supply rules.

91 The place of supply rules changed again on 1 January 2011. Until then EU law (Dir 2006/112, Art 53) said that the (business to business) services taxable in destination included “the supply of cultural, artistic, sporting, scientific, educational, entertainment and similar services” so pretty much anything else a tour operator did was taxed in resort and therefore outside the reverse charge. But from 1 January 2011 Art 53 only covers B2B “services in respect of admission to cultural .... events”. So theatre tickets or football tickets remain taxable in destination but purchasers of cultural etc services which are not admission to an event and are as a result no longer taxed in resort – possible examples are guide fees, ski lessons - have to reverse charge themselves UK VAT on the cost from then. They show output tax due to HMRC and equal and opposite input tax. Normally input tax is deductible so the reverse charge is a non event but under TOMS input tax on direct costs is not deductible. In theory if all the suppliers stopped charging VAT in resort and cut prices to the operators by about 20%, this would be VAT neutral. But what happens if the supplier continues to charge VAT but HMRC say they are taxable in the UK? Double taxation cannot be right. And what about non EU destinations - there has been no corresponding cut in local VAT? Considerable uncertainty remains and this is a major issue for many operators eg ski specialists.

VAT rate changes

92 TOMS uses the VAT fraction because sales and purchases are both VAT inclusive.  The rate of VAT was 17.5% (VAT fraction 7/47) from 1 April 1991 until 30 November 2008 when it was cut to 15% (VAT fraction 3/23) and then went back to 17.5% on 31 December 2009. It was increased to 20% from 3 January 2011 (VAT fraction 1/6). The examples in these notes assume the VAT fraction 1/6 throughout as does the standard spreadsheet. When the rate changes you need to consider the effect on the annual calculation and on your provisional payments (see in turn below).

93 If your accounting period straddles a rate change, you should do one annual calculation for the whole year but use an average VAT fraction. The VAT fraction should normally be a weighted average of the VAT fractions based on the sales in the two periods (on a departures basis). This gives the same answer as doing separate annual calculations for the two periods, analysing sales between the periods and apportioning the year’s costs pro rata sales for the two periods, as suggested by HMRC, but is much easier. However if your sales mix between EU and non EU destinations varies significantly between the two periods or you make significantly different margins at different times of the year, the averaging method may not give a fair and reasonable answer. You may want to do two separate calculations using actual sales, actual costs of sales and the different VAT fractions although this is not what HMRC suggest.

94 If you make standard-rated inhouse supplies eg your own UK hotel (D(4)), you will have reclaimed any VAT on the inhouse costs so the costs in the accounts are net of VAT and you have to add VAT to bring them into line with the rest of the annual calculation as required by step 4 of section 9, 709/5/2009. There is no HMRC guidance on the rate change and step 4: it is suggested that you gross up at step 4 by using a weighted average VAT rate, again based on the sales in the two periods. However if your business is seasonal you may want to do two separate calculations.

95 The provisional payments are easy: use the VAT fraction applicable on the date of departure and the provisional % from last year’s annual calculation. You may have to split a quarter’s sales into months if the quarter straddles a rate change but the main point is that the provisional % from the previous year’s annual calculation does not depend on the rate of VAT in the following year (and nor does the optimum transport mark up).

Credit card surcharges

96 There is a lot of misunderstanding about credit card surcharges. If a tour operator surcharges for payment by credit card, there is only one supply, to the traveller, and the full amount goes into sales for TOMS. The payment to the credit card company is an overhead and is not deductible in TOMS.  Instead you can reclaim any VAT on the cost, except that the charge is exempt so there is none. This has always been the correct treatment for tour operators. The position of travel agents is different. The travel agent has two separate clients, the tour operator who pays them a commission and the traveller who pays them a surcharge for being allowed to pay by credit card, and these two supplies are considered separately. Until 2007 HMRC used to accept that the surcharge was exempt but now they say that the surcharge is standard-rated.

97 In the traditional model, a holiday was sold by a travel agent on behalf of a tour operator. The agent earned a commission from the tour operator. The commission was liable to VAT which was paid over to HMRC by the agent and reclaimed by the tour operator. The traveller knew that their contract was with the tour operator not with the travel agent. The travel agent did not use TOMS. The tour operator paid TOMS based on the selling price paid by the traveller, before deducting the agent’s commission. Few companies acted as both agent and principal so the two different roles were clear.

98 This model is still valid but the demarcation lines between agents and principals have broken down. Some operators are selling direct to consumers without using travel agents. Some are acting as agents rather than as principals to save VAT and bonding. Some travel agents are offering dynamic packaging and falling into TOMS. So it is now necessary to be clear about the precise contractual relationships and what they mean for TOMS, and for bonding, insurance and other purposes.

99 If a tour operator also makes supplies as a disclosed agent, the agency commission should be excluded from TOMS and charged to VAT under general principles. The commission may be exempt (eg arranging insurance), zero-rated (eg arranging zero-rated passenger transport), outside the scope of UK VAT (eg arranging non UK accommodation) or standard-rated (the default position eg arranging UK car hire). This assumes that the commission is readily identifiable so that the cost and selling price of the agency transactions can both be excluded from the calculation.

100 However, it is not always possible to identify the amount of the commission. For example, many operators sell ferry transport as agent and include the ferry in the package price. How much is the commission in this case? If the amount of the commission is not readily identifiable, the net cost (ie the selling price of the agency supply less the unknown commission) is included in the calculation at step 8 or 9, depending whether the commission is standard-rated (eg on UK car hire or accommodation) or zero-rated (eg on ferry transport or non UK accommodation). See para 2.14 of 709/5/2009.

101 Some travel companies structured their business as the agents of suppliers, eg overseas hotels, instead of as principals.  This was appropriate for businesses specialising in accommodation only and in just one or two countries.  It reduced the TOMS liability because the commission received from the hotels was outside the scope of UK VAT and in practice there was no corresponding overseas liability. This practice grew with the bedbanks to the point at which HMRC could no longer ignore it and they stated that they saw it as tax avoidance.  Accordingly, HMRC took a test case, International Life Leisure Ltd. The VAT Tribunal ruled in 2006 that ILL were liable for TOMS.

102 Similarly in the Med Hotels saga. The Lower Tax Tribunal decision went in favour of HMRC.  The Tribunal had little sympathy with Med Hotels, probably because it was clear that the overseas hotels were only paying VAT on the net price so the margin was not being taxed anywhere. Med Hotels won their appeal to the Upper Tax Tribunal but HMRC won in the Court of Appeal in July 2012 and Med Hotels are appealing to the Supreme Court.  Meanwhile HMRC can be expected to follow through and to ask bedbanks and other UK based agents to pay TOMS in future unless they can show that the principal is accounting for tax on the full selling price. However, it remains possible to be an agent and to avoid TOMS, eg if you sell car hire or accommodation as the agent of an overseas supplier and they take the money from the traveller and then pay you your commission.

103 In 2009 the Magistrates Court decision cleared Travel Republic Ltd of breaching ATOL regulations. It was not a tax case but it is fair to assume that the main reason the company adopted the structure it did was TOMS not bonding and had it lost the bonding case it would have made it more difficult to save TOMS.  The burden of proof is of course higher in a criminal case than in a tax case and the CAA have appealed so this may be overturned but meanwhile it is one decision in favour of the taxpayer.

104 Insurance income and costs are excluded from TOMS but there may be important IPT and partial exemption implications, beyond the scope of these notes. However, most operators will not have a problem as their exempt input tax will be below the de minimis limit. Specialist advice may be necessary.

105 Most tour operators recognise income on date of departure and TOMS adopts this approach. This is a departure from general principles of VAT, under which receipt of payment or issue of an invoice triggers a tax point. There is an option in TOMS to recognise income earlier: paras 4.14/4.15 of 709/5/2009. The law is in SI 1997/1806 and the interpretation of the law set out in 709/5/2009 is debatable. However it will hardly ever be beneficial to use the earlier tax point rules so these earlier tax point rules should be avoided. If your accounts recognise income before departure date, your accounting may be the problem, not TOMS.

VAT invoices

106 Under TOMS the liability is calculated at the year end and the amount of VAT in each sale is not known at the time of supply. HMRC say that this means that VAT invoices cannot be issued for supplies in TOMS (para 4.20 of 709/5/2009). This prevents business customers reclaiming VAT and conflicts with fundamental principles of VAT. This can be a big problem eg on conferences. Nonetheless, if a tour operator sells to another business, HMRC expect them to issue an invoice which otherwise conforms to the usual requirements for VAT invoices and is, for example, pre-numbered. HMRC also wish to see a statement on the invoice that the supply falls under TOMS.

Simplified annual calculations

107 Para 5.5 of 709/5/2009 introduces and section 11 details a simplified annual calculation. If the supplies are all standard-rated (whether bought in or inhouse), the liability is the VAT fraction x the difference between the sales and purchases. The simplified calculation gives the same answer as the full annual calculation, if all supplies are standard-rated. This is helpful where all the supplies are to EU destinations (including the UK) and there are standard-rated inhouse supplies eg they run their own UK hotel. It avoids the need to value the inhouse supplies (whether at cost plus or at market value). This is possible because a little algebra or a numerical example will show that the liability is the same irrespective of the value adopted for inhouse supplies.

108 However it is not simple to decide when the simplified calculation applies and it is safer not to use it unless you know what you are doing. The full calculation will always give the right answer but the simplified calculation will give too great a liability if it is used when it does not apply. Where “all such supplies are liable to VAT at the same rate”, Para 1, TL4, section 13, 709/5/2009 requires operators to use the simplified annual calculation. This is incorrect (even if it is UK law, it is contrary to EU law) and the simplified annual calculation should not be used if all the supplies are zero-rated eg the tour operator only sells holidays in non EU destinations. In this case the correct liability is zero, not 1/6 x the non EU margin as suggested by the simplified calculation. Para 5.5 of 709/5/2009 confirms this point but does not have the force of law.

109 Other points on the simplified calculation:

  • Any operator using a transport company to mitigate the 1996 extension of TOMS to EU transport needs to do the full calculation to calculate the Newco mark up.
  • If the simplified calculation is used and an operator reverts to making supplies with different liabilities, it will be important to remember to change back or the operator will overpay.

110 Travel agents may discount holidays and take less commission. If they do so without telling the tour operator, the tour operator may assume the usual commission applies and show too much commission in their accounts. The selling price of the holiday, before commission, will be overstated by an equal and opposite amount so the profit will be right but the TOMS liability will be overstated. Adjusting the TOMS calculations is straightforward if the amount of the discount is known but this may be difficult. The agents may not have the information. In addition, there are implications for self billing: the input tax claimed may be wrong. Following the confused ECJ decision in First Choice Holidays, HMRC say a tour operator cannot adjust for discounts funded by the agent without the knowledge of the operator: 709/5/2009, para 6.1.

Reps and guides

111 The treatment of reps, guides, couriers or tour managers is often muddled. HMRC may seek to disallow the cost of reps on the basis that they only meet & greet at the airport and or in resort. The principle is that purchase costs are allowed in TOMS if they are for the direct benefit of the traveller (Art 308). Purchases exclude salaries, as they do not attract VAT, so it is clear that the salaries of reps etc should be disallowed (do not confuse this with the cost of inhouse supplies eg the coach driver’s salary – this is an attempt to value the selling price of the inhouse supply as cost plus margin). But the services of reps may be bought in from other businesses or self employed individuals with VAT added or not as the case may be and should in this case be allowable even if they “only meet & greet”. HMRC say the cost of more specialist guides “is often a supply in its own right” (para 6.10) ie presumably a direct cost and therefore allowable.

112 Whether a particular supply eg guide is bought in or inhouse is a separate question but it is difficult to see how guides in isolation can create an inhouse supply. Accordingly it is rare to see inhouse guide costs in a TOMS calculation. The position is different if for example you run a ski chalet in France, employ guides, provide equipment, are registered for TVA and include the guiding supply in your TVA returns.

Purchases in foreign currencies

113 Purchases in foreign currencies have to be translated into sterling to get the costs in the accounts and TOMS. In practice the effect on the TOMS liability is not usually significant but there are considerable theoretical problems with HMRC rules. TL2 in section 13 of 709/5/2009 says operators must use one of 5 methods summarised as:

(a) the Federation of Tour Operators’ rate at the time of costing,

(b) the commercial rate of exchange at the time of costing,

In the case of the first two options you must publish the rate in your brochure.

(c) the rate published in the Financial Times on the date you make payment,

(d) the rate applicable to the purchase of the foreign currency used to pay for the supplies and

(e) the rate of exchange published by HMRC for the period when you paid for the supplies.

Each of these methods has its problems.

114 As there is a choice of methods but (unlike non EU destinations above) no default method, where does a tour operator who has hitherto complied with none of HMRC’s methods stand? If you want to use a different method from the previous year, HMRC say you must notify them at the beginning of the year ie no later than the due date of your first VAT return for that year and “Permission will not be granted retrospectively.”

115 A fundamental criticism of these rules for foreign currencies is that none of the five methods correspond to recognised accountancy standards. Assets and liabilities denominated in foreign currencies are normally translated at closing rates in the accounts at the year end and any adjustment appears in the margin in the accounts, in contravention of all five methods. In practice most tour operators use the cost of sales as shown by the accounts and therefore do not follow any of the methods laid down by HMRC. TOMS was designed as an accounts based calculation and, provided the operator is consistent in using the accounts figures, HMRC may not challenge this approach. This is the practical solution to the problem.

Self billing and travel agents’ liability on commissions

116 Many operators sell through travel agents. The agents charge the operators commission and deduct their commission from the amounts they remit to the operator. Without self billing the normal system would be for the agents to send the operators a VAT invoice but under self billing it is the operator who raises the VAT invoice and sends it to the agent. The operator’s paperwork is simplified and they get the input tax deduction sooner than they might otherwise. The travel agent is liable to account for the tax shown on the self billing invoice. Self billing agreements are common in tour operators though they are nothing to do with TOMS.

117 HMRC’s prior approval is no longer required before a taxpayer can use self billing but the general conditions set out in VAT Notice 700/62 have to be observed. If a taxpayer does not comply with these conditions they need VAT invoices from the agents before they can claim input tax. The operator must keep the names, addresses and VAT numbers of agents who have agreed to self billing and sign self billing agreements meeting the conditions in 700/62.

118 Travel agents’ commission is zero-rated if they sell flights as agent of the airline. Their commission is standard-rated if they sell holidays as agent of the operator (whether the holiday is to an EU or non EU destination). Travel agents may also sell seat only for a tour operator or consolidator (a consolidator will normally be a tour operator for this purpose). The VAT liability on agents’ commissions on seat only sales changed. Prior to the 1996 change to TOMS, seat only sales were seen as flights and the commission was zero-rated. From January 1996 seat only sales are seen as holidays and the commission is standard-rated. See Business Brief 2/96 and Information Sheet 6/96.

119 Read Notice 709/5/2009 (first issued in 1988 and last reissued in 2009) which is available here or direct from HMRC’s web site (www.hmrc.gov.uk). It is a useful summary of TOMS, although it would be improved if it contained numerical examples and there several errors in the text.

120 The tertiary law set out in section 13 of 709/5/2009 is summarised as follows:

TL1 Non EU destinations – see para 72 above

  • A tour operator may be allowed to do an EU only calculation if HMRC are notified before the due date for the first return in the year in question.
  • A tour operator may be allowed to revert to doing a worldwide annual calculation if HMRC are notified before the due date for the first return in the year.

TL2 Purchases in foreign currencies – see para 113 above

  • Costs in foreign currencies must be translated into sterling using 1 of 5 methods.
  • A tour operator may be allowed to change method if HMRC are notified before the due date for the first return in the year in question.

TL3 Market value see para 67 above.

TL4 Calculations:

  • Tour operators shall use the annual calculation in sections 9 or 11 (simplified).
  • Tour operators shall use the provisional calculations in sections 10 or 12.
  • Tour operators shall pay the provisional amounts of tax for the period concerned.
  • Tour operators shall make the annual adjustment in the first return in next year.

TL5 Definitions

This contains definitions of various terms. The definition of inhouse supply is particularly uninformative: “a supply by a tour operator which is neither a designated travel service nor an agency supply.” 

121 Further reading

  • My spreadsheet http://www.pooley.co.uk/toms_notes_excel.pdf
  • Does TOMS apply to this transaction? See my flowchart
  • The VAT (Tour Operators) Order (SI 1987/1806)
  • Arts 306 - 310 of the Principal VAT Directive. See para 122 below
  • HMRC Information Sheet 03/96 on TOMS and the airline charter option (no longer on HMRC website but a copy is available from me on request).
  • HMRC Information Sheet 04/96 on TOMS and the agency option (no longer on HMRC website but a copy is available from me on request).
  • HMRC Information Sheet 01/97 on TOMS and the transport company scheme (no longer on HMRC website but a copy is available from me on request).
  • International Life Leisure Ltd VAT Tribunal decision in 2006
  • HMRC notes on 2010 changes to TOMS: Brief 27/09
  • HMRC notes on transitional provisions on 2010 TOMS changes: Brief 74/09
  • HMRC Notice 700/62/2003 on Self-billing
  • HMRC notes on ESLs in general from 2009
  • HMRC Brief 21/10 on hotel bill back procedure

122 The last word must go to EU law. Arts 306 to 310 of the Principal VAT Directive are the basis of TOMS so it helps to understand them. See below. There are some subtle differences from the previous wording of Art 26 of the Sixth VAT Directive but it is much the same. There are also subtle differences between the text in different languages. Note that it refers to travel agents rather than tour operators and the UK distinction between the two does not translate well into other member states.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:EN:PDF

Special scheme for travel agents

Article 306

1. Member States shall apply a special VAT scheme, in accordance with this Chapter, to transactions carried out by travel agents who deal with customers in their own name and use supplies of goods or services provided by other taxable persons, in the provision of travel facilities.

This special scheme shall not apply to travel agents where they act solely as intermediaries and to whom point (c) of the first paragraph of Article 79 applies for the purposes of calculating the taxable amount.

2. For the purposes of this Chapter, tour operators shall be regarded as travel agents.

Article 307

Transactions made, in accordance with the conditions laid down in Article 306, by the travel agent in respect of a journey shall be regarded as a single service supplied by the travel agent to the traveller.

The single service shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has carried out the supply of services.

Article 308

The taxable amount and the price exclusive of VAT, within the meaning of point (8) of Article 226, in respect of the single service provided by the travel agent shall be the travel agent's margin, that is to say, the difference between the total amount, exclusive of VAT, to be paid by the traveller and the actual cost to the travel agent of supplies of goods or services provided by other taxable persons, where those transactions are for the direct benefit of the traveller.

Article 309

If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the supply of services carried out by the travel agent shall be treated as an intermediary activity exempted pursuant to Article 153.

If the transactions are performed both inside and outside the Community, only that part of the travel agent's service relating to transactions outside the Community may be exempted.

Article 310

VAT charged to the travel agent by other taxable persons in respect of transactions which are referred to in Article 307 and which are for the direct benefit of the traveller shall not be deductible or refundable in any Member State.

Further Information

  • Download my Tour Operators' Margin Schemes (TOMS VAT) booklet (MS Word)

Martin Pooley

Liability ― passenger transport

This guidance note looks at the liability of supplies of passenger transport made in the UK.

For the place of supply of passenger transport, see the Place of supply of services ― passenger transport guidance note.

For an overview of the concept of VAT liability generally, see the Liability ― overview guidance note.

In-depth commentary on the legislation and case law on the liability of passenger transport is contained in De Voil Indirect Tax Service V4.251B and V4.422.

Passenger transport ― the basics

There is a relatively broad zero rate which applies to various kinds of passenger transport when it is supplied in the UK. However, this relief is by no means exhaustive. For example, whilst the zero rate would typically apply to coach travel or train travel, it would not normally extend to passenger transport in a taxi (although many taxi operators may trade below the VAT registration threshold).

A much narrower reduced rate is also available for certain

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VAT Invoice/Expense receipts

Trainline will provide you with a receipt for proof of payment and/or proof of travel, this is available from our app or website.

This receipt is not a VAT invoice for the total cost of your travel. 

Trainline sells tickets to you on behalf of the Rail and Coach providers and do not charge VAT on your Rail and Coach travel, this is the responsibility of the Rail and Coach providers. 

Where VAT is charged on Rail and Coach travel (usually within the EU), this will either be shown on your ticket or you can obtain an invoice directly from the Rail and Coach provider if you need to recover VAT for your business account. 

Trainline does charge VAT on the booking fees applied, this is shown on your email conformation and the receipt available from the app or website, both can be used as a VAT receipt.

How do I get an expense receipt

A receipt for proof of payment and/or proof of travel is available from our App or website, following the directions below:

If using our website

  • Login into My Bookings . 
  • Find the relevant booking under Upcoming or Past tab, click on " Order details and history" .
  • An expense receipt/ invoice will be formatted ready for printing.
  • Open ‘My tickets’ and find the relevant trip.
  • Click  ‘Manage my booking’ .
  • Choose the option  ‘Expense receipt’ .
  • An expense receipt will be formatted ready for downloading.

You will require a trainline account to access My Bookings. 

How do I get a VAT invoice?

Invoices with VAT number for your tickets, if available, are paid directly by the train operator.

Train Operators

All uk trains, deutsche bahn, öbb, ouigo spain.

Trainline sells tickets to you on behalf of the Rail and Coach providers and do not charge VAT on your Rail and Coach travel. 

VAT on transport services is not deductible.  SNCF do not issue invoices with a VAT number.

Deutsche Bahn and ÖBB do not issue invoices, but you can still find the details of the VAT applied directly on the ticket.

Invoices are issued directly by Trenitalia, available from midnight on the day of purchase at the latest. Visit ‘How to request an invoice during online purchase and ticket changes’ on Trenitalia's website.

Invoices are issued directly by Italo, available from midnight on the day of purchase at the latest.  Visit Italo's website  and enter your name and ticket reference to access the details. 

You can request your invoice directly on the carrier website, by filling this form .

You can request your invoice directly on the carrier website , in "My bookings' section (page only in spanish).

Why am I paying VAT at different rates? 

Trainline is required to charge VAT on our booking fee for the use of the Trainline app or website. The rate of VAT charged depends on the country you are travelling in. In the UK, VAT is 0% on Rail and Coach travel, this will show on your VAT receipt as UK VAT at 0%.

VAT rates vary between EU countries, to see the VAT rate for each EU member state click here .

Why have I paid for my ticket in one currency, but the VAT is showing another currency?

You can choose to pay for your Rail or Coach travel in the currency of your choice. The VAT that is charged will depend on where you travel and will be shown in the currency of the country in which the VAT will be due.

Why do we tell you the companies in the Trainline group on your confirmation receipt?

The Trainline Group has companies in the United Kingdom (“UK”) and France who facilitate booking your tickets in the UK, the European Union (“EU”) and rest of the world (“ROW”).

When you buy a ticket, whether for travel in the UK, EU, ROW, or a combination, it might be a combination of the Trainline companies facilitating those bookings. The receipts you receive need to show the company that sells you the ticket. Rather than sending you lots of receipts for each ticket from our various companies, we have shown all the ticket details on the one email at the bottom to keep things nice and tidy.

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Blogs & News > VAT

VAT on Train & Plane Tickets

Lynne Gill - 27 April 2023

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Train and plane travel can be very expensive, but does the cost of your ticket include 20% VAT?

VAT on train travel

Travel on a train in the UK is "passenger transport", which is zero-rated (which means no VAT is charged) if the train has at least 10 seats, including those for the driver and crew.

VAT at the standard rate (20%) is charged on travel on a train to, from or within a fairground, theme park, water park, safari park, zoo, museum, stately home, and other places of entertainment or historical, scientific or cultural interest when the travel is linked to admission to the premises, even if a separate charge is made for the train fare.

VAT on plane travel

Like train travel, plane travel in the UK is zero-rated as passenger transport if the plane has 10 seats or more, including those for the pilot and crew.

Plane tickets for scheduled flights, i.e. flights that run according to a published timetable, are zero-rated regardless of how many passengers can be carried.

Plane travel that takes place both inside and outside the UK is zero-rated to the extent the transport takes place in the UK even if the plane does not have 10 seats or more.

Certain types of flights are not zero-rated and VAT is charged at the standard rate. These include:

  • ‘Fear of flying’ flights
  • Airship rides
  • Pleasure flights where the aircraft departs from and returns to the same airport without an advertised landing and disembarkation of passengers at another airport.
  • Hot air balloon rides

Other zero-rated passenger transport services

The following are all treated as zero-rated passenger transport, meaning no VAT is charged:

  • bus and coach transport
  • pleasure cruises
  • cliff lifts
  • horse-drawn buses
  • mystery coach or boat trips
  • sightseeing tours
  • the transport element of park and ride schemes designed to reduce traffic congestion in city centres.
  • the transport of parachutists or divers as long as it’s only transportation that’s provided.

Transport services to places of interest which are free to access are zero-rated. For example, transport to national parks, seaside resorts, historic towns and villages, canals and lakes.

Passenger transport services that are standard-rated for VAT

Some passenger transport services are always subject to VAT. For example:

  • Taxis and hire cars, unless the vehicle has 10 or more seats.
  • Novelty rides or fairground attractions, such as roller coasters, ghost trains, roundabouts, and miniature/model railways.
  • Donkey rides.
  • Monorails, cable cars and boats at visitor attractions where the transport is provided by the operation of the attraction or someone connected to the operator.
  • Transport between a car park and airport/cruise terminal where the transport is provided by the car park operator or someone connected to the operator.

Reduced rated passenger transport services

VAT at the reduced rate (5%) is charged on passenger transport in a cable-suspended vehicle with less than 10 seats.

Examples of cable-suspended vehicles include a chair, bar or gondola which is suspended from a cable.

Transport on a cable-suspended system which transports passengers from one point to another is reduced rated, and covers the following:

Helping you understand VAT better

Our goal is to help you understand the often-complex, but always-important, world of VAT. While VAT is rarely simple, with the right advice it does not need to be a headache. Our dedicated VAT team have decades of combined experience in all things VAT. If you have a query about VAT on train tickets, plane tickets, or other types of transport, get in touch today and we'll be glad to help.

DO YOU HAVE A VAT QUERY? TELL US ABOUT IT BELOW AND WE'LL BE HAPPY TO HELP

My area of expertise is land and property transactions but I have extensive knowledge of both domestic and international VAT and I love complex VAT queries. I have an Honours degree in Business Studies and a VAT legal and technical qualification from the Institute of Indirect Taxation.

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Knowing About VAT on Train Tickets and Taxi Fares

Rían Doyle

  • Aug 22, 2023

VAT “Value Added Tax” is mandatory for goods and services in many countries. In order to calculate the VAT rate, all these products and services are classified into different categories. The four most common VAT categories are; zero-rated, super-reduced, reduced, and standard-rated.

Transport services like trains, buses, taxes, flights, and fuel also bear VAT. Thus, when accessing any of these services, you will also have to pay the specified VAT amount along with the transport’s original cost.

However, not all transport services have the same VAT percentage. In fact, they are divided into different sectors, implying that their VATs vary from one another. If you want to learn about VAT on train tickets , taxi fares, and flights, then check out the following context.

Is There VAT on Train Tickets?

One of the most frequently asked questions include, "Is there VAT on train tickets UK?” VAT on travel expenses in the UK is quite complex. But if you are familiar with the VAT categories, these VAT terms will be less challenging.

The train tickets VAT belong to the zero-rated category, implying that a 0% tax is imposed on them. Most public transport services in the UK belong to the zero-rated category. The government subsidised public transport to make them more accessible for the citizens.

Remember, the train tickets are not VAT-free. Instead, 0% VAT is charged to them. You can verify the train travel VAT rate in the invoice for the ticket, where it will be mentioned that 0% VAT is imposed on the total amount.

Since Brexit, the rules for VAT train travel outside the UK have been changed. Now, if you travel outside the UK by train to other European countries, you must pay VAT according to the specific region's legalities.

In Ireland , all rail tickets are exempted from VAT. You can present your ticket and booking confirmation mail as proof of purchase.

Also Read; Is There VAT on Parking Fees and Fines? Off Street Parking

Can You Reclaim VAT on Train Tickets?

UK-based businesses registered with HMRC can reclaim the VAT on products and services they avail for professional activities. For instance, if you purchased office chairs for business and paid the standard VAT rate, i.e., 20% over the total amount, you can reclaim the VAT back. However, you can only do so if you are registered with HMRC and comply with the VAT regulations.

Similarly, suppose you utilize public transport for business activities, such as you give transport allowance to your employees for professional purchases. In that case, you can reclaim the VAT from HMRC incurred over the transport fare.

Many people complain that they utilized trains for business activities and followed the HMRC’s procedure systematically but could not reclaim the VAT. This is because train tickets are zero-rated, implying that VAT was never imposed on the train’s fare. Thus, you cannot reclaim it from HMRC when you didn’t initially pay VAT on train tickets.

Before Brexit , UK businesses could reclaim VAT on train tickets outside the UK (places where VAT applies to train fares). But now, when the UK is no longer part of the Union, the HMRC registration would not be able to give you VAT reclaim on train tickets outside the UK.

Is there VAT on Taxi Fares?

Though taxis are also a public transport service, they come under the standard-rated category for VAT. The standard rate for VAT on travel expenses in the UK is 21%. This means if you take a taxi ride in the UK, a 21% VAT will be charged.

Taxi drivers must be registered with HMRC to charge VAT fees on their ride fares. If they are self-employed and their income is below the VAT threshold, they won’t be able to charge VAT from the customers. Most Uber drivers come under the self-employed category of taxi drivers.

In Ireland, taxis charge VAT at the rate of 15%, inclusive of standard VAT at 23%. In the case of Uber taxis, the rate of VAT is 20% which is charged by Uber directly, unlike taxis where drivers charge the VAT if they meet the criteria of the VAT threshold.

Also Read; Is There VAT on Postage, Guide for Rules and Regulation

Can You Reclaim VAT on Taxi Fares?

You can reclaim VAT on taxi fares if the driver is registered with HMRC. Self-employed drivers do not charge VAT; thus, you cannot reclaim VAT from HMRC for rides with such drivers.

To reclaim the VAT on taxi fares, you must have the invoice for the ride. You can even ask the driver whether he’s VAT-registered. This will help you determine whether you are eligible for VAT reclaim.

From the above context, it must have become apparent that train fare VAT is 0%, and so does the airfare. To simplify things, you can remember that public transport services in the UK are zero-rated.

On the contrary, private transport facilities like jets with less than ten seats or taxis are standard-rated. The standard-rated products and services in the UK are charged 21% VAT. However, The VAT rate varies from time to time. Thus, you can also refer to the HMRC's official website to check the updated VAT rates.

Is there VAT on travel?

Some transport services in the UK are standard-rated, implying that 21% VAT is charged on the total fare. However, most public transport services such as trains, flights, and buses are zero-rated, which means 0% VAT is charged on their fares.

Is there VAT on train tickets in the UK?

If the train has at least ten seats, it becomes a "passenger transport." Such transport services are zero-rated in the UK, implying no tax is added to the fare.

Is there VAT on travel expenses?

If your transport means include buses, trains, airlines, or any other public means, there would be no VAT. However, if you are travelling on a private jet (with less than ten seats) or taxi, then the fare will include 21% (standard-rated) VAT.

I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.

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Jon Jenkins

Is There VAT on Train Tickets? (Zero Rated or Exempt)

With a standard VAT rate of 20% in the UK you could be losing out on valuable cash and profit in your business if you do not reclaim VAT on your travel expenses where possible. 

But it’s not always obvious when you can claim VAT, for example, small business owners often question whether there is VAT on train tickets in the UK.

It’s no surprise there is this confusion around VAT on rail tickets, buses, taxis, Ubers, and planes. After all, in 2009 it was reported that the UK tax code had exceeded that of India and, at 11,520 pages was the longest in the world (Accounting Web, n.d.).  

Is there VAT on train tickets?  There is no VAT on train tickets in the UK.  Train and rail tickets and other public passenger transport generally tend to be zero-rated for VAT purposes.  There are however some exceptions to the rules.

We are sure you have better things to do than try and understand the complexities of the UK tax system. So, if you have ever been left scratching your head wondering whether train tickets VAT zero or exempt and how to manage these expenses, read on.

VAT on train tickets and other travel expenses

Not claiming VAT on train tickets and other business expenses can impact the cash you have in your business and the amount of  money you have available to pay yourself  through profits. Consider this simple example of claiming missed VAT:

Getting this wrong can add up to a sizeable amount of money across the financial year. It is always best to double-check receipts and invoices for evidence of VAT. This isn’t always easy as there are many exceptions to the rules when it comes to VAT and how it is displayed on receipts and invoices.

Below we have provided guidance on some of the common expenses including train tickets, Ubers , taxis, planes, and buses and the applicable VAT treatment.

Are train tickets VAT zero or exempt?

Train tickets are VAT zero, and not VAT exempt. 

Domestic passenger transport in any vehicle, ship or aircraft that has at least 10 seats, including those for driver and crew can be zero-rated for VAT unless the supply is an exception from zero rates in which case it will be charged at the standard-rate VAT. 

This generally tends to be if the supply of transport includes the right to admission to a museum, theme park, zoo, or other places of entertainment.

Do not confuse exempt with zero-rated.  

Whilst they both may attract a £0 VAT charge, they are different .

When entering your train ticket purchases into your accounting records make sure to use the zero-rated option instead of exempt. 

Is there VAT on trainline tickets?

There is no VAT on Trainline tickets. This is because Trainline sells tickets to you on behalf of the Rail and Coach providers and does not charge VAT on your Rail and Coach travel, as such, the VAT is the responsibility of the Rail and Coach providers.

Is there VAT on railcards and rail tickets? 

No, there is no VAT on railcards.

Public passenger transport is zero-rated for VAT purposes. As such, there is no VAT to be reclaimed on railcards. The same goes for other forms of public transport. 

Is there VAT on taxi fares? 

There are specific rules that apply to VAT on taxis and private hire cars. Private hire cars from a VAT perspective are often referred to as mini-cabs.

The fares charged to passengers for taxi or private hire journeys are liable to VAT at the standard rate. Tips voluntarily given are not regarded as payment for a supply and are outside the scope of VAT i.e. you cannot reclaim VAT on a tip paid to the taxi driver.

Whilst this may seem straight forward it does get a bit more complicated depending on whether the taxi driver is self-employed, employed through the taxi firm or use the agency services of a taxi business.

The way in which the taxi driver operates could determine whether VAT is charged or not.  As such always get a receipt and look out for the VAT amount or VAT number as an indicator of whether you can reclaim the VAT or not. 

There is no hard and fast rule with reclaiming VAT on taxi fares as the structure of the taxi drivers’ service can impact the VAT treatment.

Is there VAT on bus tickets? 

No, there is no VAT on bus tickets . Just like train tickets and other public transport costs, bus and coach fares are zero-rated for VAT so you cannot reclaim anything on them.

Is there VAT on the TFL congestion charge?

The London Congestion Charge and the Ultra-Low Emission Zone (ULEZ) Charge are both outside the scope of VAT as non-business statutory levies imposed by Transport for London.  

With Auto Pay, payment of these statutory charges is taken automatically for the number of charging days a vehicle travels within the Congestion Charge zone during charging hours and if it doesn’t meet the emissions standards, the ULEZ. 

An annual £10 registration charge applies to each vehicle added to Auto Pay.

The registration charge follows the VAT treatment of the statutory levies and is therefore outside the scope of VAT . Auto Pay does not represent a separate supply made by TfL to the road user.

Handy Hint:  We recommend that you always  keep any travel receipts  to help you process your business expenses properly.

Is there VAT on Uber?

Uber is considered a contractor in the provision of private hire services with the driver. In a recent High Court ruling this means that Uber is now required to charge standard rate VAT on the whole provision of the ride and not just the commission it charges drivers who find work through its app.

That means the whole of the service is standard rated and you can reclaim the VAT on your Uber provided the cost was a genuine business expense.

You can download a copy of your invoices by logging in at  riders.uber.com/trips :

  • Go to My Trips.
  • Select your trip.
  • Select view detail.
  • Download invoice from the top right-hand corner.

Is there VAT on plane tickets?

Scheduled flights and plane tickets are zero-rated for VAT purposes. A scheduled flight is one that runs either according to a published timetable or so regularly or frequently as to constitute a recognisable systematic series of flights.

Zero-rating applies to all scheduled flights irrespective of the carrying capacity of the aircraft.

As you would probably have gathered by now there are a few spurious exceptions to that rule. If the provision of transport is part of a package or inclusive tour, which includes facilities, bought in from third parties, there may be VAT to account.

The following examples are standard rated, although the list is not exhaustive:

  • ‘Fear of flying’ flights.
  • Airship rides.
  • ‘Flights to nowhere’ and similar pleasure flights where the aircraft returns to the airport of departure without an advertised landing and disembarkation of passengers at another airport.
  • Hot air balloon rides.

Is there VAT on parking? 

Charges for parking are normally subject to VAT .

However, on-street parking is operated by the Local Authority and is covered by statute.  Because of this, there is no VAT on on-street parking charges.

Always check the ticket for evidence. If there is a VAT number on the parking ticket the company operating the car park is VAT registered and you can reclaim VAT at the standard rate.

The amount of VAT on your parking may not be detailed on the ticket as legally you do not need to provide the breakdown on receipts under the value of £100.  That does not mean that there is no VAT to reclaim but you may have to calculate it yourself.

  • Car park ticket: £4.00
  • Net of VAT (/1.2): £3.33
  • VAT: £0.67                                       

Frequently asked questions on whether there is VAT on train tickets

Is a train ticket a vat receipt.

Yes. It is a receipt and proof of purchase for the services provided. Although there is no VAT charged as the rate of VAT is zero-rated it would still be deemed a VAT receipt.

The purchase should be entered into your accounting records as zero-rated with £0 VAT reclaimed.

Are train tickets zero-rated for VAT

Yes. Although there is no VAT charged as the rate of VAT is zero-rated it would still be deemed a VAT receipt.  The purchase should be entered into your accounting records as zero-rated with £0 VAT reclaimed.

How do I get an invoice for my train ticket?

Where VAT is charged on Rail and Coach, this will either be shown on your ticket, or you can obtain an invoice directly from the Rail and Coach provider if you need to recover VAT for your business.

Trainline does not charge VAT on the booking fees applied, this is shown on the email confirmation and the receipt available from the app or website, both can be used as a VAT receipt.

Is there VAT on travel expenses?

That depends on whether the travel expense is considered passenger transport. If the travel expense is considered passenger transport, then it is most likely zero-rated. There are exceptions so please double-check guidance.

There are also situations that qualify as standard-rated passenger transport and related services which may attract VAT at the standard rate.

As a rule of thumb must public passenger transport such as buses, coaches and trains will be zero-rated for VAT purposes provided they meet the 10-passenger rule.

There are exceptions to the rules as always when it comes to HMRC. It is always worth double-checking to avoid falling foul of an exception to the rule. You cannot rely on a standard way of claiming VAT as shown by the VAT on taxi fares which differs depending on the way the supply is provided. 

One size does not fit all.

As we have seen with Uber and the recent court case it is also worth checking to see if there has been a change in legislation or case law which might impact how you have been claiming VAT.

You might also like…

  • What triggers an HMRC investigation
  • Is there VAT on Royal Mail postage and stamps?

coach travel zero rated

Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.

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Coach USA Continues to Raise the Bar with New Safety Initiative

Coach USA, a trusted leader in the transportation industry, is proud to announce the launch of its Destination Zero: Back to Basics initiative. Destination Zero is an extension of Coach USA’s strong commitment to safety and was established with a singular goal in mind: zero incidents and zero injuries. Through this industry-leading initiative, Coach USA once again raises the bar, ensuring the highest levels of safety for the passengers who rely on these services, the employees who serve them, and everyone they share the road with.

As a safety-first company that strives to deliver excellence to its customers, Coach USA recognizes the importance of continually elevating its procedures and protocols in every aspect of its operations. In alignment with this commitment, Destination Zero encompasses a comprehensive set of measures designed to heighten safety protocols, improve training procedures, and implement safety challenges. Coach USA firmly believes these practices will cultivate greater outcomes for both its customers and the employees who provide these crucial transportation services.

Derrick Waters, CEO of Coach USA, looks forward to rededicating the company to its best-in-class safety practices that make Coach USA, as well as its Coach Canada and Megabus network, stand out amongst the competition: “As we move into the post-Covid period at Coach USA, I am extremely excited about the focus we have on keeping our people, customers, and the public safe. We are working to improve communication and our employee involvement around safety, which will allow us to have a more diverse safety environment across all Coach USA teams.”

Key highlights of the Destination Zero initiative include:

On-Board Technology: By integrating advanced technology systems, Coach USA can monitor various aspects of driver behavior and vehicle performance in real-time to assist with eliminating unsafe acts. The data received from these systems is analyzed to identify potential operational safety risks, allowing safety management to provide valuable feedback, training, or maintenance so that they can continue providing a secure and reliable transportation experience.

Trainers' Townhall Meetings: Trainers are a critical component of the Coach USA safety program, which is why the Destination Zero program includes additional opportunities to engage them and solicit valuable feedback. The intent is to foster open communication and create a collaborative environment where they can share their insights, experiences, and suggestions for improving training practices.

Safety Meetings: Safety meetings serve as a highly effective tool for communicating updates on processes and policies to local teams. Additionally, they provide a beneficial platform for employees to express their concerns and priorities, contributing to the ongoing improvement and reinforcement of safety guidelines.

Monthly Safety Leadership Courses : Revitalization of the Coach USA leadership program involves the introduction of new leadership courses each month. These courses are open to all individuals in safety-critical positions within the organization, allowing these leaders to delve into topics that will further develop their ability to identify and address safety challenges, propose innovative solutions, and implement best practices within their respective roles.

Safety Challenges : Improving safety practices within the organization requires a proactive approach. Destination Zero includes safety challenges that not only raise awareness about a variety of safety topics but also provide a platform for employees to showcase their expertise and dedication to maintaining a safe working environment.

Coach USA's Destination Zero program is a testament to the company’s push for continued growth and ability to uphold the highest safety standards in a constantly evolving transportation industry. Through the implementation of this new program, Coach USA aims to provide an even greater customer and employee experience while making a direct contribution to keeping bus travel as one of the safest modes of transportation available.

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VAT Transport

  • VTRANS020000

VTRANS020500 - Zero-rating of passenger transport: Passenger transport in vehicles designed or adapted to carry ten or more passengers - item 4(a)

Item 4(a) zero-rates passenger transport within the UK in any vehicle, ship or aircraft designed or adapted to carry ten or more passengers. (The driver and crew are treated as passengers for the purposes of determining the carrying capacity.)

The test is one of design, in Cirdan Sailing Trust [2006] STC 185, here a boat could only legally carry fewer than 10 passengers but the High Court found that:

… the test in item 4 is a test largely related to the physical capacity of the vessel, and that, if a particular vessel meets the physical requirements implied by the test, the statutory wording does not permit the denial of the zero rate the ground that it would be unlawful for that particular vessel to carry passengers up to the level of the physical capacity.

If the carrying capacity of the vehicle, ship or aircraft is less than ten passengers at the time of the supply, that transport is standard-rated unless it can be zero-rated under Group 8, Item 4(b), 4(c), or 4(d) or Legal Note 4D for the transport of disabled passengers in specially adapted vehicles, or is an ambulance service - see VTRANS020900 .

Upper Tribunal [2012] UKUT 130 (TCC) Davies (trading as Special Occasions/2XL Limos) confirmed that the zero rate liability was determined by the number of seats in place at the time of a supply. That is if a seat is removed from a 10 seat vehicle the zero rate can no longer apply, but if it is reinstated the zero rate can resume from that point.

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Examples of zero-rated passenger transport

  • cliff lifts, where the individual cars are designed or adapted to carry at least ten passengers
  • excursions by coach and train (including steam railways)
  • horse drawn buses
  • mystery coach trips and boat trips
  • sightseeing tours
  • the transport element of park and ride schemes designed to reduce traffic congestion in city centres.
  • trams and road trains
  • modified Non-Emergency Patient Transport Services (NEPTS) with a carrying capacity that allows for 10 or more passengers to be seated. For NEPTS vehicles with less than 10 persons seating capacity see VTRANS020900

Detailed examples are given in VTRANS020900 , VTRANS021000 , VTRANS021100 and VTRANS021200 .

The majority of the Tribunals took place when the law specified a 12-seat parameter, this was changed to 10 seats in April 2001.

The Tribunal considered the significance of what constituted the vehicle which was designed or adapted to carry 12 or more passengers in several cases.

In Needles Chairlift Co Ltd (LON S/73/168), a cliff chairlift consisting of 54 sets of two-seater chairs was found not to be a vehicle in its own right.

In Heights of Abraham (MAN 85/51), another cliff lift consisted of twelve individual gondolas, not joined together, each carrying six persons. The lift itself was again found not to be a vehicle in its own right, and the appellants contention that the individual gondolas should be grouped in some way was not accepted. Each gondola held fewer than twelve passengers, so zero-rating was not appropriate.

In Llandudno Cabinlift Co Ltd (1973 VATTR 1), the entire lift system was found to be a system for moving the individual cars, rather than a vehicle in its own right: the individual cars were vehicles, but only carried four passengers each, and the lift did not therefore qualify for zero-rating under item 4(a).

In Country Hotel Narrow Boats (MAN/2954/94), the Tribunal rejected the appellant’s argument that a powered barge towing an unpowered “butty” boat was similar to a train and should be treated as a single vehicle. The Tribunal held that each boat was a vehicle or ship for the purpose of item 4(a).

In Granada Group PLC (MAN/95/2573) the Tribunal considered whether the charge for admission to the American Adventure Theme Park was a single standard rated supply, or separate supplies of the right to use each facility of which those relating to a miniature railway, boats and a land train, all of which were designed to carry 12 or more passengers, could be zero rated under item 4(a) of Group 8. It involved supplies made prior to 1 April 1995, when the VAT (Transport) Order 1994 was implemented (see VTRANS030000 ). The Theme Park contained a number of rides and attractions including the miniature railway system which carried patrons half way round a 37 acre lake, boats which carried them across the lake, and the land train which carried them from the car park to the entrance and vice versa.

The Tribunal held that there was a single supply of standard rated admission. However, it found that the ride on the land train was not a supply since there was no consideration, the service being provided before admission was charged. It did not state whether, had there been separate supplies, it would have regarded the miniature railway and boats as standard rated rides or zero rated passenger transport.

Taxis and Limousines

The provision of transport in taxis and hire cars, which usually carry less than ten passengers, is standard-rated. However, the supply of a limousine (with a driver) which can seat 10 or more passengers is zero-rated under item 4(a) regardless of whether it is licensed or legal to carry that number of passengers- see reference to Cirdan above.

Notice 700/25 Taxis and hire cars gives guidance on the way VAT affects the taxi and hire-car trade.

Miniature and narrow-gauge railways

Passenger transport on miniature railways within a place of recreation or interest are excluded from zero rating (see VTRANS030000 ). However, where they are not in such a place, or are in a place to which the public have free and unrestricted access, such as a public park, zero rating is likely to depend on factors such as:

  • the overall scale of the railway (distance between stations, total length of track etc);
  • the context (whether or not one of several similar rides); and
  • whether it performs a genuine passenger transport function (transports passengers around an area, up steep inclines etc or whether it is effectively confined to the spot).

In Metroland Ltd (MAN 95/2709) the Tribunal held that a miniature train ride, which was one of several attractions within an indoor theme park, did not amount to passenger transport. The ride lasted some two minutes and the Tribunal stated that any alighting at the “stations” was merely an incident of what was essentially a pleasure ride. This case concerned supplies made prior to the introduction of standard rating for passenger transport within a place of entertainment (see VTRANS030000 ). Metroland’s subsequent appeal to the High Court was dismissed because, in the event, they did not attend to present their case.

In Narogauge Ltd (LON 95/1867), the Tribunal held that a miniature railway ride within a public park was transport of passengers. The journey was a circuit from the main station to another 375 yards along the track and on back to the main station, a total journey of a mile. The Tribunal likened the distance between stations to the distance of a one stop bus ride. It stated that although the ride was a novel and attractive means of transport, it was not similar to a fairground attraction where patrons necessarily remained in one place.

Ships and boats

In Cirdan Sailing Trust (VTD 18865) the Tribunal looked at the meaning of designed or adapted in item 4a and concluded (Para 66) that it is the carrying capacity at the time of supply that is critical not that which may have been the case when originally built.

The subsequent appeal [2006] STC185 found that when measuring the capacity of the vessel

Nevertheless, the condition in item 4(a), which involved identifying the number of passengers a ship was designed or adapted to carry, had to be applied in a sensible way by reference to the actual and anticipated way in which the ship was to be used.

In other words when considering whether to allow zero-rating under item 4(a) you must look at the capacity at the time of supply and measure it in a the light of the current layout and intended use.

This rationale applies equally to other forms of transport.

Strictly, item 4(a) standard rates passenger transport services in aircraft with a carrying capacity of 10 or more passengers which have been adapted to carry less than that number. However, some aircraft are designed with flexible seating capacities. For example, an aircraft with a maximum design capacity of ten passengers may be so arranged to carry eight passengers; or an aircraft which normally flies in an eight-seat layout may be rearranged to its full ten seat capacity. Similarly, some aircraft are sufficiently adaptable to change their seating capacity from flight to flight. This can cause problems in deciding what constitutes the capacity of the aircraft for design or adaptation purposes. We have agreed with the General Aviation and Manufacturers Association (GAMTA) that with effect from 1 May 1997 passenger transport services may be zero-rated in such circumstances provided:

  • the aircraft is designed, according to the flight manual, to carry ten or more passengers, including crew; and
  • the necessary seat runners, tracks, mountings etc for at least ten seats are permanently in place in the aircraft; and
  • at least ten seats, together with their safety equipment (seat belts, life jackets, oxygen masks etc) are maintained at all times by the operator to airworthiness standards administered by internationally recognised aviation authorities or in accordance with Ministry of Defence specifications.

If these conditions cannot be met, the aircraft is regarded as being adapted to carry less than ten passengers and passenger transport services therein are standard-rated, unless they qualify for domestic zero-rating under items 4(b) or (c).

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routeone

Is this the start of the EV revolution in coach tourism?

Alex Crawford

Coach Tourism Association members convened in July to discuss the future of zero-emission coaches in the UK’s touring industry

All coach operators will need to look towards alternate fuels by 2040 – and a collaborative approach is needed for that transition.

That was the warning given at the Coach Tourism Association’s (CTA) latest Summer Networking event, which witnessed nearly a hundred delegates from across the sector delving into the shift towards zero-emission (ZE) coach tourism for the first time in the Association’s history.

Despite there being (as yet) no set date for the end of sale of new non-zero-emission coaches, the two-day conference held at the DoubleTree by Hilton London Elstree hotel on 23-24 July not only presented dialogues on existing ZE coaches, but also offered glimpses of the solutions that lie ahead for when that day comes.

Delegates heard from Ian Downie, Head of Yutong UK at Pelican Bus and Coach, and Ian Foley, Company Founder and Managing Director of Equipmake, on the two solutions currently

available for operators seeking ZE coaches: New build, in the form of a Yutong TCe12 (and, anticipated in Q1 of 2024, the GTe14), as well as re-power, established recently by Equipmake with a Van Hool T917 owned by London operator Westway.

The session came with a pressing message that tour operators must “stay ahead of the game” if the advantages of coach travel are not to diminish as more examples of ZE vehicles take to Britain’s roads.

“That’s a challenge,” acknowledges CTA’s administrator Steve Rooney, adding that timescales in that sense are against the industry.

He adds that retaining the environmental advantage that coaches have in terms of CO2 emissions requires “working with all partners” on the transition to ZE. That includes, for coach tourism operators, venues, destinations and hotels.

Despite obstacles in terms of vehicle range, charging infrastructure, and concerns over sufficient luggage space, the seminar proved there is a palpable commitment among operators, attractions, and hotel members to test out the new generation of environmentally friendly coaches in a touring application.

Benefits proven with new build?

From a day trip and touring perspective, Ian Downie espouses the benefits already proven with battery-electric coaches, such as superior quietness and better reliability. However, he adds that there is “quite a leap” to make with infrastructure.

To address some of the concerns, he points to Pelican’s ‘Team Zero’ scheme, which unites the geographic spread of operators of the company’s 281 supplied battery-electric vehicles across Scotland, England and Wales, and which enables members to permit fellow members to use their facilities to charge vehicles.

Feedback on the TCe12 from customers has been a call for more luggage and passenger capacity. The three-axle GTe14, anticipated in the first quarter of 2024, is expected to address those concerns, with a passenger capacity of 63 people when fitted with a toilet. Its battery capacity of 422kW/h or 563kW/h will give operating ranges of between 200-300 miles, or more.

Repower options

Ian Foley, presenting the second option of battery-electric repower, is keen to point out to delegates that electric vehicle sales in some areas are now exceeding conventional vehicle sales. That trend is being driven both by heightened awareness of global warning and government policy. To assuage doubts about the growth of that market, he points to the rapid rise of new technology throughout history, and that “history has shown that if there is enough demand, these problems get solved quickly.”

Speaking to routeone , he highlights also the lower running costs of electric vehicles, noting that the stock price of electricity has already returned to pre-crisis levels. “We’ve just been through a huge energy shock that has affected conventional fuel as well as electricity. That has already reversed, and those costs will come down even further with the rise of renewables,” he says.

He demonstrates that there was little appetite for repower from finance companies five years ago, with a paucity of evidence of drivetrain reliability and battery longevity as reasons cited for that lack of interest. However, Ian Foley reveals Equipmake is now regularly contacted by finance companies that are “actively pursuing” the financing of both vehicles and the infrastructure.

Now productionising electric repowers of conventional vehicles, Equipmake’s focus when repowering coach and bus is to maintain capacity, with no loss of interior or luggage space. Ian Foley adds that, over a five-year period, the cost of a repower – touted as being significantly lower than a new purchase – can be repaid through lower operating and maintenance costs.

Equipmake also has an advantage by being a “tech provider”. It repowers vehicles with batteries sourced from both LG and CATL. “The fact we are the tech provider means that, as those trends change, we can flex our offering dependant on which is the best solution for the marketplace,” he explains. “A key area of risk in terms of warranty is the battery. The warranty is backed by manufacturers, and because we manufacture the product, we can better support that product.

“For example, if there is a problem with the motor in five or 10 years, we would refurbish it – it’s our own design. That can be done more cost effectively than replacement with a new motor. Compared to some competitors, we can offer a more cost effective, longer-term maintenance programme. Fundamentally, the technology is going to be cost effective and affordable in the medium term.”

Operators still sceptical?

A key question for operators and one raised by David Blake of Blakes Coaches was on when the idealised vision of the battery-electric touring coach – one that will be capable of doing high distances, up to 1,000km, between charges – becomes available. He highlighted that, with current technology and a 300km range, a 12-day tour to Italy would take 21 days in a battery-electric coach, something currently unfeasible.

That question is, of course, difficult to answer. Ian Downie explains that, despite developments over time such as a move to tri-axle coaches and denser battery capacity, with few manufacturers in the ZE coach segment, the production of right-hand drive models is a significant investment. A more comprehensive answer could be available in the next five years.

“We have, we believe, a reasonable solution for longer distance, but it won’t suit all applications,” he says. “Over time, battery chemistry will change. We will have solid state. We will have denser batteries. But at this point in time I don’t think we have a solution for every coach application. We’re still striving to work and solve that.”

Robert Easton, of Eastons Holidays, is, like many operators, curious to know how long it will be before battery-electric coaches can be scheduled for a tour anywhere in the UK, confident in the knowledge that there will be adequate charging facilities.

That is a question for other CTA members, and will require investment in hotels. Ian Downie pointed out that it will be a collaborative partnership that achieves a green situation within the industry.

However, operators point out that there are already struggles simply with adequate parking facilities.

“We have to have dedicated coach charging infrastructure,” says Ian Downie. “If hotels want to encourage coach operators in, they will need a coach charging point. In partnership, achieving that is a lot easier.”

Alternatives to batteries?

With hydrogen also being explored as a solution for long-distance coach travel, the question of when manufacturers may start delivering hydrogen fuel cell-electric drivelines was also raised.

Yutong already operates some 600 hydrogen fuel cell-electric vehicles, but Ian Downie asserts that there are at least two more generations required to give the “range reliability and functionality” required for the UK market.

Yutong will therefore not be offering a fuel cell-electric vehicle “until at least the next decade” and only if there is a supply of green hydrogen. That falls within Pelican Yutong’s sustainability credentials. “Hydrogen is inefficient in terms of energy usage, compared to battery electric,” explains Ian Downie, noting that batteries lose between 20-30% between the energy being generated and moving the vehicle, while hydrogen loses between 70-80%. “If we are conscious of utilising our energy resources, we have to prioritise electric compared to hydrogen.”

He notes also that hydrogen applications would be niche, pointing to the relatively low demand for such long-distance or 24-hour operation. “What I would like to say is we’re very proud that we actually have two products that will enable the coach industry to begin to decarbonise – and that demonstrates our ongoing commitment to this important sector.”

A hydrogen repower is “technically feasible” according to Ian Foley. But he adds that the majority of the market will be satisfied with battery. On that front, in order to offer further confidence to the coach tourism sector, Equipmake can deliver another 106kW/h out of its current Van Hool repower battery capacity, which will deliver an additional 40-50 mile range. “I think we will have the longest range option,” he concludes. “It’s clearly not going to meet all requirements at the moment, but it’s a very similar discussion as has happened with the city bus industry. 10 years ago, the demand from many operators was for a 250-mile range, and that attitude changed to accepting that, where there were limitations, there was going to be a mix. It’s similar for coaches because there are operators like Westway and others that are implementing battery-electric coaches despite those limitations.”

One final positive to come from the seminar was Pelican’s offer to lend a GTe14 demonstrator to CTA, with a request that CTA produce a report of what members think. “The CTA group will be good experience,” says Ian Downie. “Its members can share the knowledge and experience that is then gained from that demonstration, and that’s with its operator members as well as the tour and hotel groups. As with all demonstrators, we want positive and negative feedback about areas we can improve, areas we can work upon or even the sharing of best practice and knowledge helps everybody.”

Robert Shaw, CTA Chair, responded positively to the presentations, acknowledging that they explained in simple terms the implications and development of the current electrification of coaches. Yutong in particular is an “indication of how far forward [some manufacturers] are looking,” he adds. “We’re starting on the journey, and it gives a real idea that if anyone can do it, Pelican and Yutong can.”

The remaining scepticism in the room from many operators is, he continues, understandable – and acknowledges that there are a lot of bridges to cross. “But I think the indications are good,” he says. “I think it’s a big start, and today was helpful in providing some of the information to coach tour operators. Attractions and destinations are part of the journey, and it’s essential that they’re aware of the need to provide charging infrastructure.”

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COMMENTS

  1. The VAT treatment of passenger transport (VAT Notice 744A)

    You may zero rate your supply when making certain arrangements for a supply of zero-rated passenger transport. You can find further information in Travel agents (VAT Notice 709/6) .

  2. Is there VAT on coach travel?

    Coach travel is listed as a zero-rated essential service, meaning that there should be no VAT charge when travelling via coach. However, additional extras, such as catering or entertainment services in action whilst on board are VAT registered and you will be expected to pay the additional charge of 20% for these services. This is the same ...

  3. Is there VAT on train tickets? Don't get derailed by hidden costs

    Train tickets in the UK fall under the zero-rated category. This means as a business you need to keep track of the 0% VAT you're paying on train travel in your VAT returns. This is different from being exempt from VAT. Unlike exempt items, like postage stamps, which the government considers as entirely outside the scope of VAT.

  4. Is there VAT on train tickets? (and other VAT questions)

    No - like train tickets and most public transport costs, bus fares are zero-rated for VAT so you can't reclaim anything on them. Taxi fares. Yes - you can usually claim VAT on taxi fares at the standard rate (20%) unless the taxi driver is self-employed and not registered for VAT - always ask for a VAT receipt. ... Flights/air travel. No ...

  5. VTRANS021100

    The carriage of a bus, coach or taxi with passengers is regarded as passenger transport, whether or not charged at the private car rate by the operator, and is zero-rated provided the supply would ...

  6. VAT on travel expenses for businesses

    Train, ferry & air travel. The vast majority of public transportation is zero-rated for VAT and so no tax has been paid and naturally, this can't be claimed back. The rule is that if the method of travel can carry ten passengers or more then it is zero-rated. This means that train, underground and ferry tickets should all be zero-rated.

  7. TOMS VAT

    If for example you own coaches, employ drivers, pay hotels and sell coach tours, the hotel is bought in but the coach transport is an inhouse supply. ... Under TOMS, the liability depends on the destination. The margin on non EU holidays is zero-rated. In addition, under the transport company scheme, in effect the liability depends on the ...

  8. Liability ― passenger transport

    There is a relatively broad zero rate which applies to various kinds of passenger transport when it is supplied in the UK. However, this relief is by no means exhaustive. For example, whilst the zero rate would typically apply to coach travel or train travel, it would not normally extend to passenger transport in a taxi (although many taxi ...

  9. Is There VAT on Bus Tickets? (Exempt / Zero-Rated)

    The difference between VAT exempt and zero-rated. Bus fares have no VAT charge, but they are classed as being zero-rated for VAT. ... No, there is no VAT on coach tickets as coach travel is classed as a zero-rated essential service. However, some items you purchased during a coach journey will have VAT applied to them, such as on-board catering ...

  10. VAT Invoice/Expense receipts

    VAT Invoice/Expense receipts. Trainline will provide you with a receipt for proof of payment and/or proof of travel, this is available from our app or website. This receipt is not a VAT invoice for the total cost of your travel. Trainline sells tickets to you on behalf of the Rail and Coach providers and do not charge VAT on your Rail and Coach ...

  11. VAT on Train & Plane Tickets

    VAT on plane travel. Like train travel, plane travel in the UK is zero-rated as passenger transport if the plane has 10 seats or more, including those for the pilot and crew. Plane tickets for scheduled flights, i.e. flights that run according to a published timetable, are zero-rated regardless of how many passengers can be carried.

  12. 2. VAT treatment of passenger transport services

    2.1 The liability of passenger transport services. Passenger transport services supplied in the UK, including its territorial waters, can be either: • zero-rated - but you must keep evidence to substantiate zero rating. • reduced-rated. • standard-rated. Zero-rated transport. You can zero rate the transport of passengers:

  13. VTRANS020100

    VTRANS020000 deals with the liability of passenger transport under the VAT Act 1994, Schedule 8, Group 8, item 4; which confers extensive zero-rating on passenger transport services. Legal Notes ...

  14. VTRANS020400

    However, the charter of ships and aircraft, are also zero-rated, Group 8 under items 1 and 2 and notes A1, 1 and 2 and the supply on charter may include the crew. VTRANS110300 gives more ...

  15. Travel agents (VAT Notice 709/6)

    The term 'travel agent' is often used loosely and a travel agent may act in 3 ways, which will affect how you must account for VAT. 1.3 How can a travel agent act A travel agent can be:

  16. Coach travel is a crucial part of the journey to net zero

    A change in travel behaviours will have a huge impact on reducing our carbon emissions, and we must avoid focusing solely on zero emission vehicles. A 15% increase in coach passenger journeys by British people each year could lead to approximately 47 million fewer cars on the road, saving over a quarter of a million tonnes of carbon dioxide and ...

  17. Knowing About VAT on Train Tickets and Taxi Fares

    VAT on travel expenses in the UK is quite complex. But if you are familiar with the VAT categories, these VAT terms will be less challenging. The train tickets VAT belong to the zero-rated category, implying that a 0% tax is imposed on them. Most public transport services in the UK belong to the zero-rated category.

  18. Could you be facing a VAT bill for flight services (and other "zero

    If you would like to discuss your options for the VAT treatment of transport, or any other VAT matters, please contact me on 07971 642789 [email protected]. 25 5 Comments. Flights are zero rated ...

  19. Is There VAT on Train Tickets? (Zero Rated or Exempt)

    The purchase should be entered into your accounting records as zero-rated with £0 VAT reclaimed. Are train tickets zero-rated for VAT. Yes. Although there is no VAT charged as the rate of VAT is zero-rated it would still be deemed a VAT receipt. The purchase should be entered into your accounting records as zero-rated with £0 VAT reclaimed.

  20. Coach USA Continues to Raise the Bar with New Safety Initiative

    Coach USA, a trusted leader in the transportation industry, is proud to announce the launch of its Destination Zero: Back to Basics initiative. Destination Zero is an extension of Coach USA's strong commitment to safety and was established with a singular goal in mind: zero incidents and zero injuries. Through this industry-leading initiative, Coach USA once again raises the bar, ensuring ...

  21. VTRANS020500

    If the carrying capacity of the vehicle, ship or aircraft is less than ten passengers at the time of the supply, that transport is standard-rated unless it can be zero-rated under Group 8, Item 4 ...

  22. PDF Coach Route Map to Destination Zero

    Coach travel is already one of the most sustainable and environmentally friendly ways to travel, with average carbon dioxide emissions per passenger per journey around 1.5 times lower than rail, 5 times lower than air and 6 times lower than car travel.3 Just one coach can remove up to 50 cars from the

  23. Is this the start of the EV revolution in coach tourism?

    By. Coach Tourism Association members convened in July to discuss the future of zero-emission coaches in the UK's touring industry All coach operators will need to look towards alternate fuels by 2040 - and a collaborative approach is needed for that transition. That was the warning given at the Coach Tourism Association's (CTA)