Following the webinar on the future of the Tour Operators' Margin Scheme (TOMS) and the impact of VAT on the travel sector, we have received a number of queries relating to this topic. I would encourage anyone who knows the answers to any of these queries to comment in the section below.
The questions are as follows:
How will Brexit affect TOMS - any certainty?
I understood TOMS applied for B2B too (conference management etc.)?
Is there a threshold under which TOMS doesn't apply - in the same way as VAT thresholds?
Are the direct costs on the departure date basis also?
Are sales just those that are included in toms. exclude those sales as agent.
Rather than waiting to the end of the year for the TOMS calculations, can we calculate the margin at the end of each booking, if the system allows, and then declare in the relevant VAT return period when the booking ended?
How would it work if the passenger's holiday crosses between the EU and out of the EU. e.g. London- Cairo- Athens- London, with flights and accommodation all part of the package with mark ups on both?
We are a heritage train operating wholly within the UK - the train travel is zero rated however if we combine train travel with a coach transfer then effectively two zero rated supplies packaged together fall under TOMS and therefore then become standard rated? If the main supply is train only and a tour can be purchased as an add on extra (revenue and costs of which can be seperately identified) - can they be treated as two separate supplies i.e. zero rated train travel / Toms for the Tour optional extra? Has there been any cases setting a precedent for this?
What about the ECJ case law of September 2013 that TOMS should apply on B2B supplies?
In case of tour operators that charge a 'handling fee' to travel agents, is the handling fee considered part of the revenue for the purposes of TOMS calculation? This is especially important if TOMS applies on B2B supplies
In the Tour Operator accounts, where would you suggest presenting the transport costs/mark-up from the Transport Co. and the Management charge from T.O. to Transport Co.?
I am aware that some other European Countries suggest foreign VAT Liability where coach tours are run in their country, but that seems to go against TOMS principle. Is this common is there an easy way to solve?
We organise field trips to Universities for their own students. Is this considered B2C or B2B?
Can you recommend any literature on calculating toms
If registered for TOMs in the UK, could you put your TOMs status in question if you setup an office (or even a store room!) in another EU country?
Will it be £85,000 turnover or £85,000 margin that will be used to determine whether digital record keeping will be required under MTD for VAT?
How do we account for loss making bookings within the TOMS calculation?
As an event organiser, is management time associated with buying and selling / contracting subject to TOMS?
If you know the actual GP margin on the EU and Non EU sales, should you still complete the usual calculation or can you just charge VAT on the actual vatable margin?
Should you wish to comment on any of the above then please indicate in your response which question you are referring to.
1 No certainty. HMRC say they want to keep VAT as is and Hammond wants the tax so best guess is no change in UK in short term. Problem is that a hard Brexit could require any operator based in UK to register and declare output VAT in every Member State to which they send travellers. TOMS only protects operators established in the EU (PVD Art 307). Be careful what you wish for.
2 UK says B2B4C (for consumption by the business customer eg conference for its staff) is in TOMS and that B2B4R (for resale by business customer eg they are a tour operator and resell) is not in TOMS (normal VAT rules instead). CJEU said both are in TOMS (Kingdom of Spain decision) but UK is not applying this decision (HMRC Brief 05/14). Conferences vary and B2B is complicated by wish to recover input tax and possible need to register locally (inhouse supplies). Need to look at on case by case basis.
3 There is a 1% de minimis in Notice 709/5 para 3.6 but it rarely applies. If TOMS applies you use it to inter alia calculate the value of your supplies so you do not have to register if your margin is less than £85,000 and you make no other supplies (709/5 para 4.1). If you are not liable to register for VAT and do not register voluntarily you do not need to do TOMS calculations or pay TOMS but there is no threshold for TOMS as such.
4 Yes. Most operators recognise income on departure date and the accounts need to match income and expense so the margin in the accounts is fit for TOMS purpose. Keep it simple!
5 Sale as agent are not liable to TOMS eg travel agents' commissions received fall under normal VAT rules. But you could have long discussion on eg whether a business is really an agent (see Supreme Ct decision in MedHotels), undisclosed agents, the hotel bill back scheme and on the differences between the common law concept of agency in the UK and the civil law approach in many other jurisdictions.
6 That would be eminently sensible but HMRC say no. Provided you do an annual calculation at the year end I would not lose any sleep over the difference. Your estimate of the VAT due in the quarter is more accurate than theirs and where is the authority in EU law for an estimate in the period (or indeed for an annual calculation)?
7 EU non EU splits normally based on actual costs of hotels etc or if not available simply pro rata the number of nights. Transport depends on itinerary and stops: see Notice 709/5 paras 4.10 to 4.13. But if the operator is using the transport company scheme the TOMS liability on the transport margin will be nil irrespective of the EU non EU split.
8-22 Watch this space
8 Three questions in one:
9 The Kingdom of Spain decision not only said that wholesale supplies should be in TOMS (which would probably kill off the transport company scheme) but also that TOMS should be calculated transaction by transaction. So the annual calculation used to calculate TOMS in the UK and in many other member states is contrary to the fundamental VAT principle that you calculate VAT transaction by transaction. TOMS is built on sand. HMRC Brief 05/14 allows UK tax payers to follow the Kingdom of Spain decision if they want but it is not that easy.
10 As a general rule the tour operator only has one client and is only making one supply, to the traveller, and any handling fee is additional consideration for that supply ie goes into sales figure in TOMS. One client, one transaction and one VAT treatment. But the reference to the operator charging the agent is unclear. Travel agents by contrast often make two supplies to two different clients, one of marketing the operator’s holiday for which they receive a commission from the operator (which falls under normal VAT rules) and another when they sell travel insurance (and receive commission from the insurance provider) or charge the traveller for paying by credit card (and travel agents argued for many years that this was an exempt financial transaction but seem to have lost this argument). Two clients, two transactions and two different VAT treatments.
11 Most tour operators prepare their P&L showing the cost of transport as marked up by the transport company and the management charge received from the transport company as other income. This is distortive but if the transport company is a wholly owned subsidiary of the tour operator and consolidated accounts are prepared the problem goes away.
12 Germany, Belgium and Holland charge VAT on coach transport (and river cruises) to the extent that the transport takes place in their jurisdiction. This is correct because the place of supply of transport is where it takes place (PVD Art 48) and the transport is not zero-rated (the UK zero-rating is unusual). The coach operator, or the tour operator if different, is required to register and account for output VAT locally (rules vary according to country and period – ask a local VAT adviser). Why should German coach operators who have to charge MWS on travel in Germany be undercut by a foreign operator coming in and not accounting for MWS on travel in Germany? If the UK charged VAT on coach transport, as it is entitled to, it could require VAT on foreign coaches coming to the UK. TOMS then kicks in and the operator established outside Germany cannot reclaim the VAT on the coach cost any more than they can on the hotel cost.
14 Per question 2 this would be TOMS as B2B4C rather than B2B4R but all B2B supplies need to be looked at carefully. TOMS is not attractive.
15 See question 7.
16 Who is the tour operator’s client? And if it is the University, do they resell? Similarly for school trips and other group travel scenarios. Look at the documentation. The answer is often unclear. But the common sense answer is normally that the university or school is not a tour operator (do they use TOMS and pay for bonding?) so the supply is from the operator to the traveller and falls under TOMS. This approach would be confirmed if as is often the case the operator’s terms & conditions require the person signing the booking form (teacher or leader) to confirm that they are booking on behalf of the individual travellers.
17 See HMRC Notice 709/5 or the notes on my website www.pooley.co.uk.
18 TOMS is payable in the member state where the tour operator is established (PVD Art 307) and in practice it is usually pretty clear where this is. A small office in another member state would probably not change this. But would the office generate any local income? Contrast eg ski chalet operators who are in effect running hotels in destination (“inhouse”) and register locally to pay VAT on the income from accommodation, bar etc. They still use TOMS in the country where they are established but the TOMS calculation does not make them pay VAT on the accommodation again.
19 No special rules for MTD & TOMS (yet). If the margin is less than £85,000 the operator may not be required to be VAT registered (ie if below limit with any other supplies). If the operator is VAT registered or should be, MTD will apply. See question 3.
20 Normally operators do an annual TOMS calculation so losses and profits are netted out. The treatment of non EU destinations is interesting if % margins vary significantly between EU and non EU destinations: include or exclude? See question 22.
22 EU law says TOMS does not apply to non EU destinations (PVD Art 309). UK rules say you include non EU destinations in both sides of the calculation, average out the margins and zero-rate the margin apportioned to non EU costs. This is usually cheaper than excluding non EU destinations from both sides of the calculation. HMRC say you can elect to exclude non EU destinations provided you notify them a year in advance. The election is irrevocable for the coming year but you get a chance to revoke it the following year. There are several test cases on this (eg Aspro, Simply & MyTravel), in particular on when you have to notify the election to HMRC but the rules have changed. HMRC apply the time limit strictly. In the light of EU law and the Kingdom of Spain decision the law in this area appears to be open to challenge. In practice it is rare for it to be beneficial to exclude non EU destinations and the issue is usually overpayments arising because operators have misunderstood the position and wrongly excluded low margin non EU destinations from past calculations.