Abta said the decision would “remove an area of uncertainty on a crucial issue” for many of its members and had been agreed on the assumption of a possible no deal with the EU.

The association explained that in the event of no deal being reached with the EU on Toms, a new UK version will be introduced which will require payment of Toms VAT only on UK holidays – but not on package holidays within the EU.

Guidance notes for Abta members have been agreed with HMRC and published on Abta’s website.

However, Abta said an “area of uncertainty” remained in that in future there may be a need for travel firms to register VAT with individual EU states.

An additional Abta guidance note will be released “when there is more clarity in this area”, the association added.

Abta’s director of finance and operations Carolyn Watson said: “We were pleased to be able to work closely with HMRC on this important matter and I thank HMRC for its understanding of how serious this issue is for many travel companies and its action to remove this area of uncertainty.

“This will greatly assist members as they look to rebuild travel with our most important holiday destinations, the majority of which are within the EU.

“However, I would stress that one area of uncertainty still remains; in the longer term the possible need to register for VAT purposes within individual EU state. We will let members know when the position on this becomes clearer.”