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 Accounting News & Insights

VAT – Travel, Wholesalers & TOMS – HMRC Guidance Issued

7th February 2014

HMRC have released their brief “VAT: Tour Operators Margin Scheme (TOMS) – position following European Court of Justice infraction decisions” (available to view on the HMRC website).

The brief sets out how UK tour operators and other businesses supplying travel products will be affected by the CECJ decisions which were released last year (see our earlier blogs for more detail concerning the cases). The earlier decisions confirmed that the supply of travel products on a wholesale basis should fall within TOMS. This is contrary to current UK treatment as we apply the normal VAT rules to such transactions. In addition there was concern the decision would lead to the removal of the UK’s VAT transport company arrangements used by the industry to reduce the cost of TOMS VAT.

HMRC have confirmed in the brief that there will be no change to the current VAT treatment applied in the UK at this stage (although this position will be reviewed after a year). This will mean that:

  1. UK travel businesses who sell travel products on a wholesale basis will not have to apply TOMS (although they can choose to do so if this is of benefit to them); and
  2. There will not be a requirement for the UK TOMS calculation to be carried out on an individual transaction basis.

This is excellent news for the UK travel industry, especially for businesses using the ‘transport company’ arrangements, a unique VAT mitigation structure used by the majority of UK established retail tour operators to reduce the amount of VAT due on the sale of a travel package.

Although the UK was not party to the CECJ cases and the original infraction proceedings, it is supposed to amend its VAT legislation in respect of any binding CECJ VAT cases. Therefore, whilst the decision not to amend the UK legislation is good news there will ultimately be a shelf life to applying the current position. However the decision reached by HMRC to maintain the current rules has been influenced by the EU Commission indicating that it has an intention to carry out a review of TOMS, which may result in significant changes to the scheme in the future. It will be interesting to see where the EU Commission gets to with these discussions as TOMS has been on the agenda for the past decade with no real change being implemented.

If you would like to discuss any of the above, please contact sarah.brock@wardwilliams.co.uk


Accounting News & Insights

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VAT – Travel, Wholesalers & TOMS – HMRC Guidance Issued

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