Travel Sector Outlook 2020: What’s next for VAT and TOMS?
After the 'will we, won't we leave the EU without a deal' last year, things look a little more certain at the start of 2020. I say 'a little' because the end of the year still holds its own uncertainties when it comes to our future agreement with the EU.
What do we know about what will happen on 31 January 2020 as regards to VAT for the travel sector?
First and foremost, we know that the VAT law will stay the same for the time being. The Tour Operators Margin Scheme (TOMS for short) will continue - VAT will be payable on the margin of UK and EU holidays as it always has been. The margin on non-EU holidays will continue to be zero rated. Wholesale B2B supplies will continue outside TOMS but the taxpayer has a choice whether to use TOMS or not. VAT on agency services remains the same.
More of the same then? Yes during the transition period until 31 December 2020. If a deal is struck with the EU before the end of 2020, then we exit on the basis of whatever the deal says and VAT will be part of any deal. If no deal is agreed then PM Boris Johnson has already said we will go ahead without a deal which will bring back the uncertainty over our future relationship with the EU.
What happens to TOMS in a no-deal Brexit?
We know that under the 2019 no deal scenario, it was announced that under TOMS, VAT would only be payable on the margin of UK holidays with the margin VAT free on all other holidays outside the UK - it would have been a welcome reduction in costs for UK tour operators. It did however raise the possibility of UK tour operators having to register for VAT in all the countries where they supply holidays. The EU does not currently require non-EU tour operators to register for VAT in the EU but we know that the Commission has considered this as a possible means to create a fairer playing field for EU and non-EU tour operators.
Maybe this scenario would be resurrected in the event of no deal being reached at the end of December but we really do not know yet.
Going forward then, non-EU based tour operators can still avoid paying VAT in the EU. Rent to rent operators, suppliers of serviced accommodation, can fall within TOMS to reduce their VAT bill and B2B wholesale suppliers of tours to non UK businesses can continue to use the anomaly which allows them to recover VAT on their costs and yet not charge VAT on their sales.
VAT has never been the simple tax it was envisaged to be and TOMS in particular, has its own quirks.