Hard Brexit – how will tour operators be affected?

24 January 2019

Tour operators use a special EU VAT scheme to work out how much VAT they have to pay on holidays they sell. This is known as the Tour Operators’ Margin Scheme or TOMS, for short.

As its name suggests, tour operators all over the EU work out the margin on the holidays they sell and then VAT is due at the standard rate on the margin, on holidays which take place within the EU. No VAT is due on the margin on sales outside the EU.

It is worth saying that the scheme puts holidays outside the EU at a VAT advantage to those within the EU, and is notoriously difficult for businesses to operate, as it results in lengthy and complex calculations.

We already know that if the UK does leave with a withdrawal agreement with the EU in place (the so-called ‘soft Brexit’), then TOMS will continue in its current form during the transitional period.

What we didn’t know until now, was how tour operators were expected to handle their VAT in the event of a hard Brexit.

VAT in the event of a hard Brexit

Yesterday the Treasury issued a new Statutory Instrument (SI) which will be enacted in the event of a no deal hard Brexit. This SI says that tour operators will continue to pay VAT on the margin of UK holidays but that the margin will be zero rated for all holidays which take place outside the UK.

This would save tour operators a hefty VAT bill if there is to be a hard Brexit, but is there a sting in the tail? 

The explanation accompanying the SI includes this sentence: ‘It is possible that some member States will require UK based tour operators to register for VAT for supplies of travel services made in their country, although practices vary’.

Currently UK tour operators are not required to register in any other EU country because TOMS covers’ their activities in the whole of the EU. Non-EU tour operators, e.g. those based in the US, Dubai or Asia, are not required to register either. This has given non-EU tour operators supplying holidays into the EU, a financial advantage over EU tour operators.

It is hard to see how the EU could require UK tour operators to register for VAT without also requiring non-EU ones to do the same. However, if this is on the cards and tour operators are going to have to register in all the EU countries where they offer holidays, it could mean up to 27 local VAT registrations. Tour operators will be understandably concerned about the prospect of the work involved let alone the additional costs.

Contact us 

If you would like to discuss the above subject further, please contact Sue Rathmell, VAT specialist in the Travel & Tourism sector. She can be contacted by email at sue.rathmell@mhllp.co.uk or by telephone on 01227 602305.