UT/2024/000008 - [2025] UKUT 00100 (TCC)

On that question, we have been referred by the parties to a significant body of case law primarily derived from the decisions of the CJEU. We do not intend to conduct a review of all those cases in this decision. We will instead set out the principles that we derive from them, with reference to the leading cases.

The reason for the special scheme for travel agents and tour operators is to address the issues that arise for them from their businesses involving the provision of a multiplicity of services (typically transport and accommodation) in or outside the state in which they are established as a result of the application of the usual VAT rules (see, for example, Van Ginkel Waddinxveen BV and others v Inspecteur der Omzetbelasting Utrecht (Case C-163/91) (“Van Ginkel”) at [13]-[15])

Article 306 of the PVD refers expressly to “travel agents” (Article 306.1) and extends the scheme to “tour operators” (Article 306.2) by providing that for the purposes of the relevant chapter of the PVD tour operators are to be treated as travel agents. Neither term is defined. The UK legislation – section 53 VATA and Articles 2 and 3 of the TOMS Order – refers to supplies of goods or services made by “tour operators”. Again, this term is not defined.

Notwithstanding these express references, and the acknowledged purpose of the rules, the case law is clear that the special scheme is not confined to supplies of travel agents and tour operators in the traditional sense. The scope of the special scheme is defined by the nature of the services that are provided and not the classification of the person that makes the supplies.

The leading case in this respect is the decision of the CJEU in Customs and Excise Commissioners v Madgett and Baldwin (trading as Howden Court Hotel) (Cases C-308/96 and C-94/97) (“Madgett”). Madgett concerned hoteliers, who ran a hotel in Torquay, but who provided coach travel for guests from and to points in the North of England to and from the hotel through arrangements made with a coach hire firm. The CJEU held that the supplies of coach travel fell within the special scheme. The CJEU says this at Madgett [20]-[23]:

The CJEU therefore decided that a trader who provides “identical services” (Madgett [20] and [21]) to those of a travel agent or tour operator within the normal meaning of those terms, will fall within the special scheme. The CJEU’s conclusion (at Madgett [23]) is expressed in more general terms.

Similar statements to those in Madgett can be found in other cases. In Finanzamt Heidelberg v iSt internationale Sprach- und Studienreisen GmbH (Case C-200/04) (“iSt”), the taxpayer company organized language and study programmes in the United States for German students including the provision of accommodation and, in some circumstances, flights, as well as other services. The CJEU found that these services fell within the special scheme. The CJEU says this at iSt [22]-[24]:

In this passage (at iSt [24]), the CJEU expresses its conclusion on the basis that the company provided services which were “identical or at least comparable” to those of a travel agent or tour operator. Later in the decision, the CJEU expresses its conclusion once again in more general terms, by reference to the provision of travel services as principal using supplies and services provided by others (see iSt [34] and [48]). The CJEU says this at iSt [34]:

The question of how to compare a service provided by a trader who is not a travel agent or tour operator within the normal meaning of those terms with services commonly provided by travel agents and tour operators is central to HMRC’s criticisms of the FTT’s “high level” approach, which form the basis of Ground 1 of this appeal. We address that issue below.

The services provided by the taxpayer must relate to travel or a journey if they are to fall within the scheme (Minerva Kulturreisen GmbH v Finanzamt Freital (Case C-31/10) (“Minerva”) at [15]). This is evident from the wording of the PVD: Article 306.1 PVD refers to the provision of “travel facilities”; and Article 307 which refers to the transactions made “in respect of a journey... to a traveller”.

Notwithstanding the reasons for the creation of the scheme, there is no requirement for the taxpayer’s supplies to involve a multiplicity of services.

Nor is there a requirement for a cross-border element (Madgett [19]). The purpose and duration of travel are also irrelevant (iSt [35]-[36]).

The special scheme only applies to “bought-in” services; that is, services which the taxpayer buys-in from other businesses as principal and provides as a part of its service to the traveller. Accordingly, when a taxpayer provides both bought-in services and its own services (referred to as “in-house services”) to a traveller, it is only the bought-in services that fall within the scheme (Madgett [35], Maria Kozak v Dyrektor Izby Skarbowej w Lublinie (Case C-557/11) [27]).

Also, if they are to fall within the scheme, the bought-in services cannot be ancillary to a principal supply which is not within the scope of the scheme. This will typically be the case where a taxpayer buys-in travel services which represent only a small proportion of the service provided to the client and that principal service is not a travel service. This concept is described by the CJEU in Madgett in the following terms (Madgett [24]-[25]):