Travel fees, commission and VAT codes in the ledger
How a travel agency's booking fees, supplier commission and packages post through the Travel pack, and the VAT question to settle before invoicing.
By Achekam · · 4 min read · For Travel businesses in South Africa, Nigeria, Kenya
Launching soon. The Industry CRM add-on described in this article is launching soon. This article describes it as it will work at launch.
A travel agency earns its money in more than one way. It charges travellers fees for booking, ticketing and changes. It earns commission from airlines, hotels and tour operators. It may sell its own tour packages at a margin. Each of those is a different kind of income, and each may be treated differently for VAT.
Put them all on one revenue line at the standard rate and two things go wrong. Management accounts cannot tell you which part of the business earns its keep, and the VAT return may charge tax that is not due, or miss tax that is.
The Travel pack in Achekam's Industry CRM keeps these income streams apart from the first invoice. Before you use it, there is one question you need to settle with your tax adviser. This article covers both.
What the starter catalogue holds
Turning the Travel pack on brings its revenue accounts into your chart and its starter items into your catalogue. Should one of its codes already belong, in your chart, to an account of another type, the pack will not activate, and the message names the account causing the problem.
The Travel pack's starter catalogue lists:
- booking fees, ticketing fees and change fees
- visa assistance
- supplier commission
- tour packages
Between them, these post to two revenue accounts, 4440 and 4450. After activation, open your chart of accounts, read which items point to which account, and check that the split matches how you want to see your income. If it does not, raise it with your accountant before the first invoice rather than after the first month.
The pack ships every item without a price. You set your own fees, and commission and package prices are whatever your agreements and costings say.
Every starter item starts at the standard rate
The Travel pack's starter items use the standard VAT rate, and the pack tells the business that international travel may be treated differently, to be confirmed with its tax adviser.
That message is the most important line in the catalogue. The standard rate is only a starting point. It may be wrong for a fee or package connected with international travel, or for commission earned from a supplier abroad. The pack does not decide that for you, and neither should a software default.
The question to settle first
Take these questions to your tax adviser before the first invoice:
- Which of our fees relate to international travel, and how is each treated for VAT in our country?
- When we sell a tour package, are we selling it in our own name, or arranging it as an agent for the supplier?
- How is commission from local suppliers treated, and is commission from suppliers abroad any different?
- Do visa assistance fees follow the trip or stand on their own?
Ask for the answers in writing, item by item. They decide the VAT on every line you invoice.
Applying the answer on each line
At the time of writing, the standard VAT rate is 15% in South Africa, where it has applied since 1 April 2018, 7.5% in Nigeria and 16% in Kenya, under Kenya's VAT Act 2013. Rates change, so check the current rate with the tax authority before relying on these.
How you apply your adviser's answer depends on your country:
| Country | How a line's VAT is set |
|---|---|
| South Africa | Each line is set to 15% or 0%; the invoice screen does not tell zero-rated and exempt apart |
| Nigeria and Kenya | Each line takes a tax code: standard, zero-rated, exempt, out of scope or reverse charge, and only standard lines carry VAT |
For Nigerian and Kenyan agencies there is one more point. While Achekam's standard VAT rate rule for your country is awaiting platform approval, a standard-rated line is refused, with a message telling you to choose a tax code without VAT or wait. Your other codes are unaffected.
From accepted quote to draft invoice
A traveller who is happy with a quote accepts it online, by typing their name and ticking a box, and that acceptance creates a draft invoice in receivables. After it is sent, the quote cannot be altered, only revised. The acceptance is stored with the traveller's IP address and browser, and the link's token is kept only as a hash.
Because the invoice arrives as a draft, a person sees it before it posts, unless an administrator has recorded authority for immediate issue. For a travel agency that review is the moment to confirm the VAT code on each line before anything posts.
Lines that name their account
On every line, the invoice states which product is sold and which revenue account it feeds. Posting follows the lines: income lands account by account, and cost of sales is recorded in the same journal. A booking fee lands on the account set for fees; a tour package lands on the account its item names, with its cost of sales in the same entry.
The result is an income statement in which each kind of income appears on the account its item names, without any month-end reclassification. Commission is often invoiced to the supplier after the trip; the booking fee is usually invoiced to the traveller at booking. Both reach the right account because each line said where it belonged.
Before the first invoice
Get your adviser's answers in writing, price the starter items, apply the right VAT treatment line by line, and then issue your first booking through the pack. Clear booking terms should say which fees are refundable, because a credit note follows the original invoice's tax codes, as refunding a cancelled trip explains.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
