Principal or agent? The distinction that shapes your VAT and your liability

One of the most consequential questions a travel business can ask about itself is deceptively simple: are you a principal or an agent? When you act as principal, you buy travel and resell it in your own name; the traveller is your customer and you stand behind the trip. When you act as a disclosed agent, you arrange a contract directly between the supplier and the traveller; you are facilitating someone else's supply, not making your own. Many operators do not realise that their own booking terms quietly place them in one camp or the other.

The distinction is not academic. It influences whether a travel margin scheme such as TOMS applies to you, whether you ever genuinely hold the full value of a booking, and how refund and chargeback exposure tends to fall. This guide is general information, not tax or legal advice, and the rules differ by country and change over time; you should confirm your own position with a qualified adviser and read your card scheme and acquirer terms for the liability detail. But getting the model right, and structuring your money to match it, prevents a lot of confusion later.

Two models, one defining question

As principal, you contract with suppliers in your own name and then contract with the traveller in your own name. You take the customer's full payment, you owe the suppliers, and the trip is, in a real sense, your product. As a disclosed agent, the legal supply runs directly between the supplier and the traveller; you arrange it and are typically remunerated by commission or a service fee, but you are not the one supplying the travel.

The reason this is so often misread is that the customer experience can look identical from the outside. The same website, the same confirmation email, the same money changing hands. What separates the two is what your terms and your contracts actually say about who is supplying what. A business can believe it is a humble agent while its booking conditions describe it, in substance, as the principal, and the tax and liability consequences follow the substance.

What it does to your VAT

The model drives the VAT treatment. A principal that buys in travel and resells it in its own name is the classic candidate for a travel margin scheme such as TOMS, or for normal VAT rules depending on what is sold. A disclosed agent is generally outside TOMS, because it is arranging a supply rather than making one; its taxable activity tends to be the commission or fee it earns, treated under ordinary rules.

There is a sharper edge for the in-between cases. An undisclosed or opaque agent, one that does not make clear it is acting for a supplier, or that presents the supply as its own, can be pulled into margin-scheme accounting even if it thinks of itself as an intermediary. The line between disclosed agency and acting in your own name can be subtle, and it is exactly the kind of question where a qualified adviser earns their fee. Treat the categories here as a map, not a ruling on your business.

Money you hold versus money you pass through

The two models also differ in what money is really yours, even briefly. A principal takes the traveller's full payment into its own account and then settles the suppliers; for a window, it genuinely holds the whole booking value. A disclosed agent, by contrast, is often handling money that is in substance pass-through: a customer payment destined for the supplier, with only the commission or fee truly belonging to the agent.

Blurring these together causes real problems. If pass-through money and your own earned commission sit in one undifferentiated balance, your reported income and your available cash both look larger than they are, and it becomes hard to tell what you are merely holding from what you have earned. The cleaner the separation between funds you genuinely hold as principal and funds you are passing through as agent, the more honest your numbers and the easier your reconciliation.

Who carries refund and chargeback risk

Liability for refunds and chargebacks tends to track the model, though the detail is governed by your contracts and, for card payments, by the card scheme and acquirer terms rather than by any general rule. As principal, you have generally taken the full payment and stand behind the trip, so refund obligations and chargeback exposure tend to sit with you. As a disclosed agent arranging a direct supplier-to-traveller contract, the primary obligation for the travel itself more often rests with the supplier, though an agent can still face chargeback exposure depending on how payments were taken and what its terms say.

Because chargeback liability in particular is determined by the card scheme rules and your acquirer agreement, you should treat the position conservatively and read those terms rather than assuming the model alone protects you. The practical takeaway is that whichever model you are in, you want to know which pots of money are exposed to refund and chargeback risk, and to keep enough visibly available to meet that risk when it lands.

How Altery fits

If your business runs both principal and agency activity, and many travel businesses do, Altery's multi-entity management lets you keep those streams in separate accounts rather than tangled in one balance, so the treatment that applies to each stays clear. Within an account, ring-fenced pots let you segregate money you genuinely hold as principal from funds you are passing through as a disclosed agent, so your earned commission and your held customer money never blur together. Real-time balances give you a clear view per model of what is yours and what is pass-through.

Where you hold the full booking value as principal, you can keep enough visibly set aside against refund and chargeback exposure rather than discovering the cash is gone when a claim lands. Multi-currency accounts hold USD, EUR and GBP for the supplier liabilities behind your bookings, with FX on your own timeline, and global mass payouts settle suppliers in a batch. Altery is not a bank, and this is general information, not tax or legal advice; the rules differ by jurisdiction and change over time, so confirm your own position with a qualified adviser and check your card scheme and acquirer terms. You can see the broader picture at /business/account/travel/.

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