The association said on Tuesday (10 September) HMRC had “agreed” forfeited customer deposits and other cancellation fees paid to travel sellers should not be subject to the tax, so long as the tax point is measured from the proposed departure date.

It comes after Abta highlighted an error in HMRC policy relating to including of cancellation fees in tour operators margin scheme, or Toms, calculations.

Abta says the decision will result in “significant” savings for travel operators. Moreover, companies that have paid additional take since 1 March will be able to claim a refund.

Carolyn Watson, Abta director of finance and resources, said: “Abta wrote to HMRC in March after disagreement with their interpretation of the VAT principles regarding VAT on cancellation fees in the guidance to its Toms Notice. Thankfully, the error in policy has now been updated and businesses will be paying less tax.”

An HMRC spokesperson said: “We have corrected our guidance to reflect the correct treatment for VAT on retained payments made for Toms supplies which customers do not use.

"We invite businesses who believe they paid too much VAT as a result of following the incorrect guidance to claim for the overpayment in the normal way.”