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Decision on online sales tax ‘could be huge for travel sector’

A proposed online sales tax needs clarification from government as it could have major ramifications for the travel industry already threatened by the cost of living crisis, an expert has warned.

The first consultation on the proposal closed last week but it has thrown up many potential issues for the sector looking forward into next year.

Ian Bell, head of travel and tourism at audit, tax and consulting firm RSM UK, said: “The consultation looks to level up the playing field for high street and online retailers. How this will work in practice is still unknown; but if services are included within the scope, then online travel agents and some tour operators may find themselves liable for a new tax in the years ahead.

“An area that requires clarification from the government is whether the tax will be applicable to both business to business (B2B) and business to consumer (B2C) transactions.

“This decision could be huge for the travel sector, with many businesses already facing immense pressure on tight margins.

“Businesses will need sufficient warning of the introduction of any new taxes given that seasonal commitments and pricing are often set many months ahead.”

Bell added: “The travel industry was arguably one of the worst hit during the pandemic and is still in the process of getting back up on its feet.

“The sector is hoping for a bounce back this year after the removal of travel restrictions and making the most of the pent-up demand for holidays post-Covid.

“However, this boost could be hampered by the cost of living crisis, so the last thing the sector needs now is the threat of additional taxes. With current economic headwinds, the cost of living squeeze and pandemic savings being depleted, there are already fears that next year could be a tough year for the industry.

“Ultimately, there are still a lot of question marks on whether travel services would fall within the scope; how business and consumer travel would be identified or what impact, if any, it would have on the travel sector.

“What is certain is it will be a complex task to determine exactly which transactions the tax will apply to, so the Treasury will have to think carefully about whether an online sales tax is worthwhile, considering the revenue that could be raised and the additional pressure this would have on an already squeezed sector.”

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