New VAT rules for travel industry now in place

Andrew Burnham, principal, MacIntyre HudsonThe new year sees the introduction of a number of VAT changes which affect the travel industry. MacIntyre Hudson principal Andrew Burnham outlines how the changes impact tour operators and travel agents.

The removal of the concessionary ‘opt-out’ and ‘opt-in’ facilities means that tour operators who have previously used either option need to review and amend the way that the Tour Operators’ Margin Scheme (TOMS) is applied and VAT is calculated from 1 January 2010. 

The ‘opt-out’ allowed supplies made to business customers for their own consumption to be excluded from TOMS. Tax invoices cannot be issued for supplies accounted for under the TOMS which conceals any VAT being charged and denies any input tax recovery.  Event organisers and other suppliers of travel facilities for business consumption often applied the ‘opt-out’ facility. 

The infrequently used ‘opt-in’ allowed supplies made to other tour operators for onward resale to be included within a single TOMS calculation rather than requiring some transactions being accounted for under the TOMS and others applying the normal VAT rules. 

Changes have also been introduced to ‘value’ in-house supplies within a TOMS calculation.

The reversion of the standard rate to 17.5% also from 1 January 2010 means that margins subject to VAT are also squeezed.

For travel agents and other ‘travel’ suppliers not within the TOMS scheme further points to consider are as follows:

There are no changes to ‘wholesale supplies’ of designated travel services made to business customers for subsequent resale which do not fall within the TOMS although this treatment may be challenged by the European Commission in the future. 

The New Year also saw the introduction of the ‘VAT Package’ with substantial changes made to the ‘place of supply’ rules for services.  Travel agents whose commission is free of UK VAT but which is instead subject to the ‘reverse charge’ procedure by principals (e.g. hotels) elsewhere within the EU (who then account for local VAT) now need to complete EC Sales Lists every calendar quarter and provide details of their customer’s EU VAT numbers. 

The compulsory electronic submission of VAT returns follows on 1 April 2010 for those businesses with a turnover exceeding £100,000.

More information is available on MacIntyre Hudson’s travel page.

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