No deal Brexit risk to UK travel companies over TOMS VAT issue

Any UK travel-based businesses operating in the EU after 29 March 2019 could see changes to their VAT accounting under the tour operators margin scheme (TOMS)

Travel providers, tour operators and other business involved with buying and reselling travel, accommodation and other associated costs within the EU, which are required to operate TOMS could be affected, if the UK were to fall out of the EU without a deal.

TOMS calculates the VAT that is to be accounted for by taking the VAT from the margin of holidays taken within the EU, including the UK.

If there is a no deal Brexit, HMRC has suggested that for UK established tour operators, or those business that are required to account for UK VAT by using the TOMS method, UK VAT will only be accounted for on the margin of UK holidays.

Accordingly, where a business is predominantly involved in holidays that take place outside of the UK but within the EU, the VAT amount payable could reduce, RSM points out.

Sandy Cochran, indirect tax director at RSM, warned: ‘Travel companies operating in the EU should be mindful of any potential VAT changes post-Brexit. A no deal scenario could have implications to the amount of UK VAT to be accounted for by HMRC, and this could mean changes to the amount of VAT payable.’

However, Cochrane pointed out that static or reduced VAT will not necessarily apply across the board.

 ‘With VAT and TOMS, the devil is in the detail, as other costs and income may need to be considered, such as the impact of any “in-house” supplies and where this stock is located for example.

‘We would urge UK businesses operating in the EU to start scenario-planning or stress-testing their balance sheets if they have not done so already. Ahead of any potential changes to VAT post Brexit, businesses should verify any revised calculations,’ Cochrane said.

RSM also noted that with Making Tax Digital for VAT coming into effect on 1 April, HMRC could use the milestone as a mechanism to review existing VAT calculations and raise assessments, adding urgency to the need to ensure the accuracy of VAT calculations.

Report by Pat Sweet

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