MHA is new to Gatwick, having opened a new office at the start of 2023, but we are by no means new to helping travel businesses deal with the problems that VAT throws at them. By Sue Rathmell, VAT Partner, MHA
I am a VAT specialist with over 30 years’ experience advising businesses on their VAT obligations. I have a team of eight VAT specialists in Gatwick, and it is part of MHA’s national VAT practice which comprises more than 20 specialists. We want to help businesses in Sussex and Surrey avoid nasty VAT surprises.
For many businesses, VAT doesn’t present too much of a problem. VAT is charged on sales at 20%, and VAT incurred on costs is recovered. Simples!
However, for tour operators who buy in and sell on travel services to consumers, VAT is very difficult indeed. Tour operators use what’s called the Tour Operators’ Margin Scheme (or TOMS for short) to calculate how much VAT they owe. Instead of paying VAT on the sales value, they pay VAT on the margin, but only the margin on UK holidays. Now that the UK has left the EU, the margin on EU holidays is zero-rated, meaning no VAT must be paid.
The TOMS scheme was originally a simplification under EU VAT law and meant that tour operators did not have to register for VAT everywhere they sent travellers. Unfortunately, with the UK leaving the EU, UK tour operators have lost this protection and the EU is currently considering requiring non-EU tour operators to register in every EU member state that they send travellers to, and pay local VAT on transport and hotels. This will require changes to the EU VAT legislation, and every EU member state has to agree to the changes so it might be some time before these new rules apply. We hope so.
VAT isn’t so easy for travel agents either. HMRC often tries to say they are tour operators acting as a principal, buying-in and selling-on travel services, rather than acting as an agent, arranging a supply between two principals. As principals, they would have to use TOMS, paying VAT out of their margin. Contracts are often poorly worded and contradictory. We saw years of litigation by HMRC and Secret Hotels over this very issue which ended with the UK Supreme Court agreeing with Secret Hotels and throwing out HMRC’s case.
So, what can you do if you are operating in the travel sector? Pin down the VAT treatment of your supplies. Don’t leave an inch of room for HMRC to argue that the VAT treatment is different. Make sure that the contracts you have with suppliers and customers are clear and unequivocal. Get advice from a VAT specialist like me who can review contracts, your website, company
terms and conditions, and make sure that you are in the clear. A dispute with HMRC can be costly and take a lot of time to resolve. So review your VAT position before HMRC does!
If you’re not in the travel sector then don’t worry, we can help you too. We advise businesses in all sectors from electronics to entertainment, and hotels to healthcare. We can help if you have a dispute with HMRC, if you are having trouble importing goods into the UK or if you don’t know whether you should charge VAT on your supplies.
Please contact us. We’d be happy to talk through any VAT issues you have – we don’t charge for an initial call. Our contact details are:
• Sue Rathmell
• Naomi Quant
• Michael Samuel-Bryan