September 2013

The VAT scheme that allows listed places of worship to claim back the VAT on the cost of repair work is to be extended with effect from 1 October 2013.

Full details on how the changes will apply are not expected to be available until 1 October, but are reported to include administrative simplifications and additional eligible works to increase VAT recovery in certain areas, including works to pipe organs, turret clocks, bells and bell ropes, and most significantly, professional services directly connected with any eligible expenditure.  The inclusion of professional services is a welcome revision as VAT recovery on such costs was previously blocked as not being eligible expenditure.

As the changes take effect from 1 October 2013, it is anticipated that new eligible items will only be included where the work is undertaken on or after 1 October 2013, and we would expect detailed information to include commentary on VAT invoicing.

This is an important and welcome change for listed places of worship, and should be taken into account when considering fund-raising and grant funding applications.

Those involved with current and planned repair works are advised to review their current plans to consider the VAT impact.

For more information on how the VAT changes affect your listed place of worship contact Karen Mulcahy on 01962 735 350 or via email at Karen.mulcahy@thevatconsultancy.com

Today saw the release of a landmark European VAT case which will change the way in which travel businesses in many EU Member States account for VAT, potentially increasing the cost of travel in some cases.

The case focused on the special VAT scheme for tour operators (TOMS), questioning whether it should apply in both a retail and  a wholesale environment.  An inconsistent approach is taken by the different Member States currently.

The ECJ has confirmed that wholesale travel transactions should fall within TOMS. This will mean that EU travel wholesalers  will have to account for VAT from the profit margin on sales of EU travel in the country in which they are established.

Previously, wholesalers in EU Member States applying normal VAT rules to wholesaling were effectively able to sell the flight or passenger transport element of an EU package without VAT.  Going forward this will change, with VAT being due from the whole margin. Clearly, once the new VAT rules are rolled out,  this will have an impact on the profitability of travel supply chains, potentially impacting pricing ultimately.

The impact of the decision from a UK perspective could be considerable.  UK travel businesses who currently use the HMRC sanctioned trader to trader (wholesale) option (commonly referred to as ’The VAT Transport Company Scheme’) will no longer benefit from the passenger transport element being VAT free. This is because supplies between  Transport Company (a wholesaler) and its tour operator will now be subject to TOMS, rendering the arrangement ineffective.

For some tour operators the increased VAT cost could be enough to make the business unviable. Where this is the case tour operators will be forced to review their business to determine if they can adopt an alternative model such as relocating the business to a non-EU location (this can take on many forms to suit the commercial circumstances of the business in question, but key is real substance existing overseas). Non EU tour operators selling EU holidays are not currently required to account for any VAT on sales.  Alternatively the business may prefer to continue operating in the UK but under a disclosed agency model or potentially the alternative ‘Agency Option’ which facilitates the use of net rates.

As with all decisions there will be a lead in time for the Member States to enact the changes, and at this early stage it is unclear as to what the precise impact will be for the UK. Therefore, whilst it is business as usual for now from a VAT accounting perspective, those wanting to make a fundamental change will need to put the wheels in motion as soon as possible given the complexity associated with changes to business models.

If you want to find out more regarding the case or if you want to arrange a meeting to discuss your business model then please do not hesitate to contact Julie Park on 01962 735 350 or via email at julie.park@thevatconsultancy.com

Various language versions of the decisions were released this morning. We are working our way through these to understand the full ramifications.

Our initial review suggests that TOMS should apply to wholesale transactions. This could have serious implications for UK tour operators using the transport company arrangement.

For some tour operators the increased VAT cost could be enough to render the business unviable. Where this is the case tour operators will be forced to review their business to determine if they can adopt an alternative model such as relocating the business to a non-EU location (this can take on many forms to suit the commercial circumstances of the business in question but key is real substance existing overseas).  Non EU tour operators selling EU holidays are not currently required to account for any VAT on sales.  Alternatively the business may prefer to continue operating in the UK but under a disclosed agency model or potentially the alternative ‘Agency Option’ which facilitates the use of net rates.

We will be providing more narrative on the decisions shortly. However, if you do have any questions or would like to discuss the implications in more detail please contact Martyne Pearson on 01962 735 350 or via email at martyne.pearson@thevatconsultancy.com

On the 26^th September 2013 the ECJ will release its decision on whether the wholesale of travel arrangements should fall within the VAT Tour Operators Margin Scheme (‘TOMS’). The case has essentially come about due to the continued inconsistency of VAT treatment applied by different EU Member States to the sale of wholesale and retail travel arrangements.  UK established travel businesses currently exclude wholesale transactions from TOMS and the ‘normal’ VAT rules apply. For example, the supply of passenger transport will be subject to VAT in the country in which the transportation takes place and the supply of hotel accommodation will be subject to VAT in the country in which the hotel is located.

As a result of the inconsistencies,  non-taxation can arise where:

• the wholesaler is established in a country that excludes these sales from TOMS; and
• the travel arrangements in question take place in a country that applies TOMS.

In this example no VAT would be due in either location.

Before the summer the AG gave his opinion that retail AND wholesale travel sales fall within TOMS.

Should the ECJ decision follow the AG opinion this would mean that all Member States would be required to change their local legislation to include wholesale supplies in TOMS. As a result any VAT due will be accounted for and collected in the country in which the travel business has established his business. Therefore there should be no risk of non-taxation.

Critically for UK established travel businesses however such an outcome would significantly increase the cost of VAT to the business. This is due to the fact that most UK based travel businesses who account for UK VAT under TOMS make use of the approved HMRC Transport Company Scheme. This is a concession which allows those operating the scheme to enter into a wholesale arrangement with a group company to buy passenger transport at an inflated mark-up. This results in no UK VAT being due under TOMS in respect of the passenger transport. This arrangement is unique to the UK and is hugely beneficial to those applying it.

Should the ECJ determine that wholesale supplies fall within TOMS, the HMRC sanctioned Transport Company Scheme will no longer provide the desired VAT benefit, leaving many UK travel businesses with a significantly larger VAT bill going forward, unless use if made of alternative arrangements such as business migration outside the EU and disclosed agency models.

If you want to find out more regarding the case or if you want to arrange a meeting to discuss your business model then please do not hesitate to contact Julie Park on 01962 735 350 or via email at julie.park@thevatconsultancy.com.

First published in Travel Weekly on 24th September.

http://www.travelweekly.co.uk/Articles/2013/09/24/45376/opinion-uk-vat-travel-exemption-hangs-in-the-balance.html