HMRC has issued Revenue and Customs Brief 9 (2019) to invite anyone who has paid too much VAT as a result of an error in the Tour Operators Margin Scheme VAT Notice 709/5 to correct this. Such an error could have resulted from an incorrect change being made to VAT Notice 709/5 when amended by HMRC with effect from 1 March 2019.
From 1 March 2019, changed its policy on retained payments and deposits (see Revenue and Customs Brief 13 (2018)) to ensure that businesses account for VAT on retained deposits when customers do not take up supplies. When doing so, it made an error in Tour Operators Margin Scheme (VAT Notice 709/5), paragraph 6.1, bullet point 4. The error was to state that all forfeited deposits and cancellation fees should be included in TOMS calculations when they should only be included in the circumstances described below.
Businesses making TOMS supplies may choose between two different methods for determining when their supply becomes taxable. They can either use:
Businesses that have chosen to use method 1 must not include money paid for supplies customers fail to take up in their TOMS calculation, as a tax point never occurs.
Businesses that have chosen to use method 2 must include money paid for supplies their customers fail to take up in their TOMS calculation where they have paid more than 20% of the price of the supply. If the customer has paid 20% or less of the price of the supply, businesses must not include the amount received in the TOMS calculation. They must treat this in accordance with method 1.
HMRC has corrected paragraph 6.1 of VAT Notice 709/5 to reflect the correct treatment for VAT on payments made for unfulfilled TOMS supplies.
Any business that has accounted for too much VAT since 1 March 2019 as a result of following the incorrect advice in paragraph 6.1 of Notice 709/05 may correct this by following the normal error correction procedure. How to correct VAT errors and make adjustments or claims (VAT Notice 700/45) explains this.