Agent or Principal: How to Evidence your Position for VAT

Updated November 2025 | By Antravia Advisory UK

For travel businesses, few VAT questions create more confusion than whether a company is acting as an agent or a principal. The distinction affects how VAT is charged, where it is due, and even who is legally responsible for the transaction.

This guide explains how the EU and UK VAT systems define the two roles, how to evidence your position, and what documentation is required to prove it during an audit.

1. Why the Distinction?

From a VAT perspective, an agent arranges or facilitates a supply on behalf of another business, while a principal buys and sells in their own name. The difference determines whether you charge VAT on the full selling price or only on your commission or margin.

In travel, this classification affects every layer of the supply chain so from OTAs and bed banks to DMCs, host agencies, and advisors. It decides:

• Who issues the invoice to the traveller.

• Whose name appears on booking confirmations and receipts.

• Who accounts for VAT, and on what value.

Getting it wrong can mean double taxation (both parties charging VAT on the same transaction) or under-declaration (no VAT charged at all).

2. The Legal Framework

Both the EU VAT Directive (Articles 28 and 30) and the UK VAT Act 1994 follow the same core principle: when a business acts in its own name but on behalf of another, it is treated as having received and supplied the service itself.

This means:

• If you act as a disclosed agent, you invoice only for your commission and VAT applies to that commission.

• If you act as an undisclosed agent or principal, VAT applies to the entire selling price.

HMRC’s guidance in VAT Notice 709/6 (Travel Agents and Tour Operators) and Revenue & Customs Brief 13 (2018) confirm that contractual evidence and commercial reality both determine the correct treatment.

3. The Commercial Indicators

Because travel contracts are complex, tax authorities rely on a set of practical indicators to assess the true nature of a transaction.
You are more likely to be treated as a principal if:

• You set the selling price to the customer.

• You decide which supplier or product is provided.

• You bear financial or inventory risk (for example, you buy hotel allotments or guarantee space).

• The contract or invoice is issued in your own name.

You are more likely to be an agent if:

• You act on behalf of a disclosed supplier.

• You earn a fixed commission from that supplier.

• The supplier sets the price charged to the traveller.

• You pass funds directly to the supplier or operate through a trust account.

In practice, many businesses fall between these extremes, for example, a DMC might sell some services as a principal (transport and excursions) but act as an agent for accommodation. The key is to analyse each supply separately.

4. Contractual Evidence

Your contractual documentation is the first thing a VAT auditor will review.
Each agreement should clearly state:

• Whether the intermediary acts “as agent” or “as principal.”

• Who the supplier of record is.

• Who owns the relationship with the end customer.

• The basis of remuneration (commission, net margin, or fee).

• Who carries liability for cancellation, refunds, and defaults.

Consistency is crucial. If the contract states you act as an agent but your invoices show you as supplier, HMRC or an EU tax authority will override the contract and treat you as principal based on the commercial reality.

5. Documentation Trail

To evidence your position effectively, maintain:

• Signed supplier contracts and rate agreements.

• Copies of invoices showing who issues and receives funds.

• Proof of payment flows (especially through merchant or OTA accounts).

• Commission statements and host-agency reports.

• Correspondence or system screenshots showing how the booking was presented to the customer.

Digital audit systems now allow authorities to match this data automatically. Under Making Tax Digital and EU e-invoicing regimes, inconsistencies between invoices and contractual statements are often flagged automatically.

See also blog - Digital Record-Keeping and Making Tax Digital (MTD) for Travel Agents and Hotels

6. Common Scenarios

Online Travel Agents (OTAs):
Most major OTAs act as agents for accommodation providers, charging VAT only on their commission. However, where they become Merchant of Record (taking customer payments and issuing invoices), tax authorities often view them as principals, especially when local agents are involved.

Destination Management Companies (DMCs):
DMCs often operate as principals for inbound services they package and sell to overseas wholesalers. But when they arrange single services (e.g., tickets or transport) on behalf of the wholesaler, they act as agents. The distinction must be recorded contractually and operationally.

Host Agencies and Independent Advisors:
Host agencies in the U.S. or U.K. typically act as agents, remitting commission income. However, where an advisor collects client funds, issues itineraries in their own name, or provides bundled services (flights + hotels), they may be treated as principals for VAT and consumer law purposes.

7. Audit Focus Points

HMRC and EU auditors routinely check for:

• Mismatches between contracts, booking confirmations, and invoices.

• Incorrect VAT application on self-billed or host-agency payments.

• Inconsistent disclosures to customers (e.g., “Your contract is with [Supplier]”).

• Merchant of Record arrangements with unclear supply chains.

Auditors rarely accept “we thought we were agents” as a defence. The burden of proof lies with the business to demonstrate that the agency structure is real and documented.

8. When in doubt, Disclose and Document

If your role is mixed or evolving, transparency helps mitigate risk.

• Make it explicit in booking terms who provides the service.

• Issue separate invoices for commission versus principal supplies.

• Retain written confirmation from suppliers acknowledging your status.

When properly evidenced, HMRC and EU tax authorities will usually respect the chosen treatment. The risk arises only when documentation is inconsistent or missing.

9. Interaction with TOMS

A business that acts as a principal on travel packages may also fall under TOMS, in which case VAT is due on the margin, not the full selling price. However, this does not apply to pure agency arrangements.
Understanding whether you are agent or principal is therefore a precondition to applying TOMS correctly — one reason the two topics are closely linked.

For more on this, see our guide: UK TOMS vs EU TOMS: What Actually Changes for Operators.

10. Common Mistakes

• Declaring VAT on full value instead of commission when acting as agent.

• Failing to account for VAT on self-billed commissions.

• Using the wrong entity name on invoices and booking confirmations.

• Applying TOMS when the agency exemption applies.

• Not updating contracts after changing business models or payment flow.

11. Practical Next Steps

1. Review all your supplier and client contracts.

2. Map payment flows and identify who is Merchant of Record.

3. Check that invoice names and VAT numbers match contractual status.

4. Create a short internal checklist for each booking type.

5. Consider a “VAT position review” with a qualified adviser if there is any doubt.

Proper documentation not only prevents penalties but also improves consistency across your accounting and customer service teams.

For more detailed reading, please also see our research paper - Antravia Research - Payment Control in Travel: Merchant Models, Credit Risk, and the Architecture of Payment Control

References

• EU VAT Directive (2006/112/EC), Articles 28 and 30

• UK VAT Act 1994, Section 47

• HMRC VAT Notice 709/6: Travel Agents and Tour Operators (2024)

• HMRC Revenue & Customs Brief 13 (2018)

• European Commission Explanatory Notes on the VAT treatment of intermediaries (2023)

• OECD International VAT/GST Guidelines (2022)

Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.
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