THE Budget created a new VAT problem for the travel industry – partial exemption – but it has received very little publicity.
Most travel companies will have to modify their accounting systems to get the information to do the calculations. This will take time and money and may cost more than the extra tax raised.
Most travel companies receive significant levels of exempt income – things like insurance commissions, interest, rent and foreign exchange.
In the past tour operators and travel agents have reclaimed all the VAT on their purchases. This is correct if they do not receive any exempt income.
But a business cannot reclaim any VAT if all its income is exempt. Businesses with a mixture of income liable to VATand exempt income must do complicated calculations to see how much they can reclaim.
Travel companies were able to ignore partial exemption in the past because their exempt income was treated as “incidental”. The budget abolishes this let out from April 11999.
Martin Pooley
Norwich
Norfolk