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January 2014

VAT – Travel, Wholesalers & TOMS – Draft HMRC Guidance Issued

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HMRC have today released their draft brief “VAT: Tour Operators Margin Scheme (TOMS) – position following European Court of Justice infraction decisions”. The brief will be publically available to view on the HMRC website from 31 January 2014.

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.

We intend to stay close to HMRC/Treasury with regard to these matters and will update you on any developments. In the meantime, if you would like to discuss the brief in more detail please do not hesitate to contact Martyne Pearson on 01962 737 951 or via email at

Travel, Wholesalers & TOMS – New HMRC Guidance to be Issued Soon

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Further to our blog “Update on our Meeting with HMRC and Treasury VAT Policy” published on 15th November 2013, we are still waiting on guidance to be issued by HMRC which sets out the UK position on the VAT treatment of wholesale supplies (further to the CECJ decision that was released last year) and the impact that this will have on the HMRC’s sanctioned Transport Company arrangement.

From our discussions with the HMRC VAT Travel Policy Team we have been informed that a business brief is in the process of being drafted and will be released shortly. HMRC have given no indication as to whether the current legislation will change as a result of the earlier decision. We wait in anticipation of the response and will provide an update as soon as we have any news.

If you have any questions regarding the above or would like to discuss the implications of the case in more detail please do not hesitate to contact Martyne Pearson on 01962 737 951 or via email at

Ibero Tours GmbH – CJEU Decision – Travel Agent Funded Discounts

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The European Court of Justice (CJEU) has given its decision on whether a self-funded discount given to travellers buying holiday packages would reduce the VAT payable by the travel agent. The Court has decided against the taxpayer ruling that there should not be a deduction in the amount of VAT paid in these circumstances.

By way of background Ibero Tours is a German travel agent who provided the service of selling a holiday package to the traveller on behalf of a tour operator. In order to sell the holiday package, Ibero Tours offered a self-funded discount. The package price of the tour and the amount payable to the tour operator did not change as a result of the discount given. This is due to the fact that the discount was funded from the agency commission Ibero Tours had earned from the tour operator as a result of selling the holiday package.

The Court decided that there was no legal reduction in the consideration paid for either the sale of the holiday by the tour operator or the commission due to Ibero Tours as agent. Therefore the self-funded discount was merely 3rd party consideration for the supply of the holiday package. This means that travel agents will need to continue to pay VAT on the full amount of commission due under its contract with the tour operator even though it doesn’t retain it in full. The decision is slightly odd in that it focuses heavily on whether the tour operator can reduce the VAT it accounts for, whereas the issue at hand here was supposed to be one of whether the travel agent can reduce the VAT due on the commission earned. The decision contradicts the AG opinion which in itself is not unusual, but the AG seemed to be more travel agent focussed and suggested that the adjustment was valid.

The outcome of the Ibero Tours case supports the decision given by the First Tier Tax Tribunal in Tui & Others case which was referred to the Upper Tribunal last year. The case was stayed pending the outcome of Ibero Tours. It will be interesting to see what happens next from a UK perspective and whether the case will continue to be heard at the Upper Tribunal (much will depend upon whether the Taxpayer can distinguish itself from the facts in the Ibero Tours case). This is clearly important to the UK travel industry given the sum at dispute.

If you have any questions regarding the above or would like to discuss the implications of the case in more detail please do not hesitate to contact Martyne Pearson on 01962 737 951 or via email at

Belly Dancing and the Education Exemption

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The FTT recently considered the VAT exemption in VATA 1994 Sch 9 group 6 item 12 in the case of Audrey Cheruvier (TC03148). Exemption applies to ‘the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer’.

The appellant offered private tuition in belly dancing, with a programme allowing dancers to progress through various levels. She argued that the tests for exemption were met but the FTT disagreed. The judgement and rationale is well set out and logical.

There are several strands to the question of whether belly dancing is a subject ordinarily taught in a school or university:

Firstly, are there any educational institutions in the UK offering study programmes in dance? Evidence was provided that there are several offerings. Therefore at face value the test is met. HOWEVER it is necessary to dig deeper and establish whether they are on all fours with the appellant’s programme. It was found that the dance study programmes offered by schools and universities had a much broader curriculum, not solely focused on the physical performance of the dance style but also including elements such as theory on the impact of dancing on muscle groups and the history of particular types of dance. The appellant’s offering focused on the physical performance. Therefore it did not mirror a course offered at a school or university. The purpose of this exemption is to allow private tuition to compete on a level playing field with the same study offered in a formal educational establishment.

Secondly, does belly dancing as a style of dancing qualify? The school and university programmes focused on mainstream dance styles such as street and ballet. The FTT did not dwell on this issue but, had it been the core argument, it is reasonable to assume that it would have qualified as it would offend the concept of fiscal neutrality to say a particular style of dance is excluded if all other tests are met.

Ultimately the FTT determined that the dance school was offering a recreational activity and as such exemption did not apply. HMRC’s manuals state that sporting and recreational activities can be exempt provided the other conditions are met in terms of analogous content.

This is another perfect example of the ‘devil lying in the detail’ – there should be no element of doubt whatsoever for a business operating in a B2C environment, as the risk of the treatment being successfully challenged can be catastrophic for the business.

To find out more contact Julie Park at The VAT Consultancy on 01962 735350 or via e-mail at

Residential Listed Buildings – Zero Rate Opportunities Still Available

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Zero rate relief from VAT has historically been available to approved alterations to listed buildings used for residential purposes.

In March 2012, changes were introduced to restrict (and ultimately withdraw) the zero rate relief from VAT in respect of certain works to listed buildings, with effect from October 2012. In implementing these changes transitional relief applies for schemes where approval had been granted on or prior to 21 March 2012, for a period ending 30 September 2015; providing a three year period for relevant approved schemes to be completed.

The zero rate continues to apply where listed building consent was granted on or prior to 21 March 2012 – and has scope to apply for variations to that consent, as well as subsequent approvals relating to the materials used within the development. Owners of residential listed buildings and their developers should ensure that the zero rate is optimised, as VAT charged in error may be difficult to adjust and increases the overall costs of the project.

For example, an application for listed building consent submitted in December 2011 and approved in February 2012, on condition that details of materials to be used for the roof and windows are submitted for approval prior to installation. The work started in September 2012, and details of the materials duly submitted for approval in January 2013. The approval for the materials is part of the consent issued prior to 21 March 2012, and the zero rate applies as per the transitional rules.

There may also be scope to apply the zero rate where the local authority had been engaged in detailed pre-application advice prior to 21 March 2012, but where final consent was not granted until later.

To find out more on the extent of the zero rated relief for work to listed buildings, contact Karen Mulcahy at The VAT Consultancy on 01962 735350 or via e-mail at

UK Changes to Intrastat Thresholds – Effective January 2014

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From 1 January 2014 the following UK thresholds have changed:

  1. Intrastat Arrival threshold has increased from £600k to £1.2m per year; and
  2. The Delivery Terms threshold has been increased from £16m to £24m.

Those currently submitting intrastat declarations will need to look at their EU trade for the calendar year 1 January 2013 – 31 December 2013 to determine whether the new thresholds have been breached. If the value of EU trade in 2013 was less than:

£1.2m there will be no need to file Intrastat Arrival declarations from 1 January 2014; and

£24m there will be no need to include the Delivery Term on the declarations from 1 January 2014.

If you have any questions regarding the above or if you would like assistance with the completion of your intrastat declaration/s please contact Martyne Pearson on 01962 737 951 or via email at <a href=””></a>