VAT on flights: what you need to know

VAT on travel

It is well known that the travel and hospitality sectors really suffered during the COVID-19 crisis. People were unable to travel, either for business or pleasure, which not only meant fewer journeys by plane, train and taxi, but fewer nights in hotels, meals in restaurants and generally much lower expenditure in these sectors.

As measures to protect these sectors through subsidies and grants came to an end, the UK Government announced major changes to VAT regulations with a view to boosting the tourism industry. While goods and services in the hospitality and tourism sectors are usually charged at the standard value-added tax rate of 20%, the Government announced that a temporary drop to the reduced rate of 5% would be introduced, making the cost of eating out, staying overnight in hotels and visiting tourist attractions immediately cheaper for a limited period of time.

However, air travel does not fall into the same category as these other expenses and its VAT treatment is different.

VAT on flights

In the UK, passenger transport in a vehicle that is designed or adapted to carry ten or more people is generally zero-rated for VAT. That means that you cannot claim back VAT on things such as train tickets or plane fares – VAT is equivalent to zero, which means there is nothing to include in your quarterly VAT return to HMRC.

What airlines do have to impose on their flights is what is known as Air Passenger Duty or APD. This is a tax that the government charges the airline, which in turn generally incorporates that into the price of the ticket, passing the cost onto the customer.

APD is added to all flights that begin in the UK and its cost depends on how far away the destination is and the class the customer travels in. Domestic flights are particularly affected by the cost of APD, as both the outward and return journeys are taxed, while only the outbound part of an international flight (the leg of the journey beginning in the UK) is taxed.

In another effort to get the airline industry moving again, the UK Government announced a cut in APD on domestic flights that will take place from April 2023.

APD cannot be reclaimed by businesses in the same way as VAT. The only acceptable reason to reclaim APD is when a flight is booked, but ultimately the customer does not use it. This is because the APD is only collected by the government when the flight is used. So, if an employee is scheduled to fly and the APD has been paid to the airline company when the ticket was bought, the APD can be reclaimed from the airline (usually by filling in a form) if the ticket is never used.

Exceptions

The only exception to the zero-rated VAT on flights is for private flights in aircraft designed for fewer than ten passengers (such as planes and helicopters). Generally speaking, the standard rate of 20% VAT is applicable to such flights. If you think your business may be affected by this exemption, it might be worth looking into the issue further. Information can be found on the HMRC website. 

Conclusion

In the UK, passenger flights are zero-rated for VAT, which means you cannot reclaim any VAT in your quarterly VAT return to HMRC. The applicable tax, airline passenger duty (APD) can only be reclaimed if the ticket for the flight has been paid for (including APD), and the ticket is then not used (due to missing the flight or a last-minute change of plans). Mooncard corporate cards can help businesses keep track of expenses incurred as a result of business travel.

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