The Court of Justice of the European Union (CJEU) has confirmed that travel agents cannot reduce the amount of VAT they pay when they grant customers discounts on the price of holidays.

Travel agents are usually remunerated for their services in arranging a holiday for a customer by receiving a commission from the tour operator.

The CJEU's judgment is that the UK is right to require travel agents to account for VAT on the full value of this commission, even if they forgo an element of it by granting the customer a discount on the price of their holiday.
 
Simon Prinn, an indirect tax partner at Deloitte, commented: "This judgment confirms that UK travel agents should still account for VAT on the full amount of their commission, even if they use some of the commission to fund a discount to the price of the holiday. He continued,

"Many UK travel agents have submitted claims for overpaid VAT. While the Ibero Tours case concerns a German taxpayer, the UK is obliged to implement judgments of the European Court. I am sure that HM Revenue & Customs will read the decision and communicate their position regarding UK travel agents in the near future."
 
"The travel sector will be disappointed with the European Court's judgment as it results in a situation where the tax authorities will continue to receive VAT on an amount more than the customer has actually paid.

The travel industry was hopeful that the European Court would follow the Opinion of the Advocate General, which was that travel agents should reduce the amount of VAT they pay when they fund discounts to the price of holidays." 

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