We met with the HMRC Travel Policy and Treasury team yesterday to discuss the outcome of the recent ECJ case on the Tour Operators’ Margin Scheme (TOMS). The main focus was the impact that the case has on the UK’s VAT Transport Company arrangement and the basis of the UK TOMS calculation. The following is a high level summary of the outcome:
Impact – It was acknowledged that further to the decision, the wholesale of travel products should fall within TOMS when supplied by a UK business. This is not in line with the current UK VAT legislation. The inclusion of such supplies would effectively make Transport Company redundant as its supplies would also fall within TOMS. We were able to share with HMRC and Treasury our belief that the majority of UK based tour operators use this arrangement and therefore the impact is wide and significant in monetary terms for the businesses in question.
Timing – Due to the fact that the UK was not part of the original infraction proceedings and was therefore not party to the ECJ case, the UK falls outside of the normal legal framework for infraction proceedings, whereby there is a strict timetable for implementing a decision. There is therefore no indication that HMRC will be forced by The Commission to make changes overnight. Although this is the case, as an ECJ decision is binding on all Member States, HMRC will be required to review the judgement and act in accordance with the decision. HMRC appreciate that it is a travel industry norm to agree brochure prices in advance and any lead in time to changes should ideally reflect this.
Info Gathering – HMRC are meeting with more advisors and businesses in the next couple of weeks to determine the impact that the changes will have on the tourism industry in the UK with the aim of releasing some guidance to businesses before Christmas.
Alternatives? – It is difficult to see what alternative models could be applied in order for the industry to retain zero rating apart from the obvious ‘Offshoring’ structures. However, we have raised one alternative model with HMRC which we believe is commercially workable and they are considering it. We will keep you updated on the progress in this area.
Calculation – The basis of the TOMS calculation was also discussed. HMRC agree that a move to a transaction by transaction calculation basis as prescribed by the ECJ decision would be difficult for the industry to comply with. It was acknowledged that this point was only raised in the Spanish decision and that the European VAT Directive does not currently specify how Member States should calculate the VAT due under TOMS.
We have agreed to continue providing HMRC and Treasury with relevant information from businesses regarding the impact so if you have any feedback regarding the case and its impact on your business we would welcome any comments or questions you may have so that we can feed these back to HMRC. In the meantime, if you would like to discuss the case in more detail please do not hesitate to contact Martyne Pearson on 01962 737 951 or via email martyne.pearson@thevatconsultancy.com.
