In late December 2012, the Icelandic parliament approved a number of changes to the rate of VAT on hospitality services, movie tickets, and certain personal – use items.
With effect from 1 January 2013, movie tickets to Icelandic films are no longer exempt from VAT, but are subject to the standard VAT rate of 25.5%.
Another VAT change effective from 1 September 2013, is the VAT rate on the rental of hotel and guestrooms and other accommodation (including campsite facilities) will increase from 7% to 14%.
Those operating under the Tour Operators Margin Scheme do not have to pay UK VAT on the onward supply of these services. However, the VAT incurred on the purchase of such items is a cost to the travel business due to the fact that the VAT cannot be recovered. For travel businesses who have already agreed 2013 brochure prices which include Icelandic content (such as hotel accommodation) these VAT rate changes will have a significant impact on their profit margins. Those currently negotiating the 2014 brochure prices will need to factor in these additional costs to ensure that the current level of profit is maintained.
If you would like any further advice on this or any other VAT issue, please contact Martyne Pearson on 01962 735350.