Brexit and the travel Industry

27 February 2019

Travel after a no-deal Brexit

When it comes to Brexit, it seems the only certainty is uncertainty. Tour operators and agents should have already prepared a strategy for coping, but all the evidence points to a substantial number still keeping their fingers crossed and hoping for the best.

There have been dire warnings from the International Air Transport Association (IATA) that in the event of a no-deal Brexit, up to 5 million flights may have to be cancelled in summer 2019. This leaves many business and consumer travellers reluctant to commit to major travel plans until the mess is resolved. The truth is that all airlines will be able to operate the same routes, at the same frequency, to EU airports as they did in 2018. It’s new routes and additional services which may suffer if no deal is agreed.

It seems the EU is doing more than the UK to ensure travel continues without delays - France is employing 600 hundred more customs officers, Portugal is planning special lanes for British travellers - but what is the UK doing to reciprocate?

Currency

On top of the operational issues, it’s important to consider some fundamental financial ones as well. It’s likely that the value of the pound will be volatile after Brexit and the travel industry and its customers need to consider the potential effects. Operator may need to review their no surcharge guarantees so they have flexibility to increase prices due to currency or transport costs.

Tax

Travel agents are subject to VAT on the profit margin of their EU business and some may be hoping that as VAT is an EU tax, when we leave the EU, it will no longer apply. In fact, things may only get more complicated so it’s important to consider what effect this may have on the cost of travel within Europe.

The Tour Operators Margin Scheme (TOMS) applies to accommodation, transport and add- ons such as car hire and airport lounges.   HMRC has announced that it will only apply to UK travel - trips overseas will still be within TOMS, but the tax will be zero rated. This should mean a reduction in VAT paid in the UK by operators selling travel within the EU area but, and this is the real issue yet to be resolved, paying TOMS in the UK will not satisfy the requirement to pay VAT elsewhere. It’s quite possible that many of the remaining 27 EU countries will require operators to register and pay VAT in the countries where services are provided, which will have a knock on cost impact for customers.  

Wholesalers and business travel agencies who operate on an agency basis, fall outside TOMS in the UK and should continue to do so, but it’s possible other EU countries may insist on registration and compliance with local schemes.

(A version of this article originally appeared in C&IT magazine on 8th February 2019).

Contact us 

If you would like to discuss the above subject further, please contact Rajeev Shaunak in our Travel & Tourism team. Alternatively, send us an online enquiry.

This Insight is part of exclusive content being provided by our experts on Brexit and how it will affect your business and its trading activity.

View our special Brexit coverage to read more commentary and analysis to help your business.