EU backs down over VAT on flights

By Paul Nelson

THE UK Government appears to have won its battle to stop the European Union overhauling the Tour Operators Margin Scheme.

A meeting earlier this month to approve plans to add VAT to the flight aspect of a package holiday broke down. If agreed, the plans would have been put to finance ministers in January.

The proposals, which would add up to £25 to the cost of a package holiday, are unlikely to be resurrected now Ireland and the Netherlands – both with opt-outs from TOMS to protect – take the EU reins this year.

The UK, which has vigorously fought the proposals on behalf of the travel industry following a Travel Weekly campaign (November 3 2003), is set to take the EU presidency for six months in 2005.

The plans would have had a disastrous effect on the UK travel industry by creating an uneven playing field, with vertically integrated tour operators avoiding VAT because their parent company owns the airline.

Corporate travel agents faced involvement in the TOMS scheme, which would have made it virtually impossible for them to clearly quote VAT for businesses, leaving them unable to claim it back.

ABTA’s head of policy and member services Stephen Alcock said: “What was on the table was a dog’s breakfast. TOMS does need to be harmonised because it is operated completely differently across the EU.

“But the proposals were a mess.”

European Tour Operators Association chief executive Tom Jenkins – who calculated the move could cost the UK about £5 million in lost tourism revenue and 5,000 jobs – said he was relieved the proposal appeared to be dead for the moment.

“We are delighted it has fallen apart,” he said. “While the current TOMS system is in desperate need of reform, the proposals were a step backward, not forward.”