Is there VAT on train tickets?

Business travel accounts for a significant proportion of expenses for many companies, particularly as the economy gets moving again after a period of stagnation due to the COVID-19 pandemic. Sole traders and other small businesses are often at a loss when it comes to knowing what travel expenses can be included in their quarterly VAT returns to HMRC and what documentation they need to keep in order to fulfil their reporting obligations. Different forms of transport are governed by different regulations, especially when it comes to VAT. In this article, we take a closer look at the ins and outs of travelling by rail and what the VAT implications are when taking the train.

VAT on travel

Value-added tax, better known as VAT, is charged on top of the price of almost all goods and services supplied within the UK. Three different tax rates, the standard rate (20%), the reduced rate (5%) and the zero rate (0%) are applied, depending on the nature of the product or service being provided.

VAT-registered companies in the UK can claim back this charge by filing what is known as a “VAT return”, a quarterly report which is submitted to the HMRC.

Specific VAT rules apply to the travel industry. This has implications for all VAT-registered businesses that incur travel-related costs. It is worth finding out a bit more about how this can impact your business.

Travel is an essential component of almost all modern business, from sole traders to major corporations. Although videoconferencing flourished during the COVID-19 pandemic, some business activities, such as meeting a client, entering into negotiations, or networking at a conference, are really best done face-to-face.

The value-added tax (VAT) regulations on the provision of passenger transport services change regularly. It can be difficult for companies to keep up with developments. The latest UK notice on the supply of passenger transport services dates from January 2021. This notice, issued by the UK government, defines passenger transport services as being supplied when “a vehicle, ship or aircraft is provided together with a driver or crew, for the carriage of passengers”.

Passenger transport services include, for example, planes, buses, coaches, trains, canal barges, taxis, ferries and so on, as long as they are provided with a driver. The VAT rate that can be applied to passenger transport services can either be zero-rated, reduced-rated or standard-rated.

VAT on train travel

Travel by train is a form of passenger transport that is supplied with a driver and crew. So, therefore, it fits the definition of a passenger transport service.

When it comes to determining what VAT rate applies to different forms of transport, the VAT regulations further clarify that vehicles that are designed or adapted to carry ten or more passengers are covered by zero-rate VAT.

In other words, train travel is zero-rated for VAT. This means that no VAT is paid and so no VAT can be reclaimed from HMRC. It is worth remembering that “zero-rated” for VAT is not the same as being “exempt” from VAT. An invoice for a zero-rated item should still include the fact that VAT is charged at 0%.

This has other tax implications for VAT-registered businesses. If you are a business that issues both zero-rated and standard or reduced-rated goods or services, it may be worth investigating this point further.

Train travel outside the UK

If the train journey takes place entirely within the UK, then obviously the supply of the service is considered as being inside the scope of application of the UK’s VAT regulations and the journey is zero-rated for VAT. If the train journey takes place outside the UK, such as in another European country, since Brexit, the UK is not covered by EU VAT regulations and any locally applicable VAT cannot be reclaimed from HMRC.

Conclusion

Train travel is zero-rated for VAT and so cannot be reclaimed through the quarterly VAT return. Other travel and travel-related expenses are covered by the standard and reduced rates of VAT, however, and it is important to be able to document these expenses and report them appropriately. Tracking travel and other business expenses with a Mooncard corporate card can help streamline the process of collecting receipts and working out what expenses can be reclaimed.

Find out more by getting in touch to arrange a no-strings-attached demonstration from Mooncard.