BREXIT – Does this mean the death of TOMS ?

Enclosed is a blog entry that was posted onto the ICAEW Tourism and hospitality Group, which covers potential legislative changes to TOM’s once the country exits the EU:-

The Tour Operator Margin Scheme (TOMS) was introduced in 1988, as a simplification for EU vendors of travel. VAT is payable on the margin and not on the full selling price and therefore there is no VAT recovery by the vendor on travel costs.  The margin VAT is payable in the member state of establishment.  Not everyone would agree that TOMS is simple, as it has become unnecessarily complicated, but the simplification is the avoidance of compliance difficulties of supplying services enjoyed in multiple states.  No TOMS would probably mean the necessity of a vendor to register for VAT in multiple states and navigating each of those states VAT compliance issues. 

BREXIT is very likely to disturb this system in the UK. What will be the position of the UK suppliers selling travel enjoyed in the rest of the EU ? And what about the zero-rating of supplies of outside EU destinations, which is currently the case under TOMS?

Whether as a professional or a business you agree or disagree as to whether TOMS is a simplification, not having TOMS could have serious implications to the UK outbound travel industry.

Recently at the ABTA Finance Seminar 2 Government officials; Colin Scott Morton –Senior Advisor from HMRC and Mike Cunningham – Deputy Director VAT and Excise Business and International Tax Group, confirmed that the Government was in listening mode and keen to understand the travel sector key issues being faced.  The EU Commission is conducting a study on the current application of VAT to travel and possible options for change.  A Call for Evidence is currently underway and the 2 Government Officials stated in the Seminar that the more financially detailed the responses were the better.  They also said that it required all 28 EU member states to be in agreement to the VAT application, TOMS or new scheme and the UK’s involvement post BREXIT.  At this juncture it did cross my mind that we had more chance of the UK winning the 2017 Eurovision song contest, than getting the 28 EU member states to agree to anything put forward in the UK submissions, but I will be pleased to be incorrect in that assumption.

Some of the suggestions as to the outcome to this debate have been perhaps we will have an EU One Stop Shop, similar to the one used for digital services currently. Simply put, this means that you can avoid the requirement to register for VAT in other member states, and under this scheme the UK will collect other member states VAT duties and distribute to them and vice versa.  It was also suggested we could potentially carry on as we are, being party to TOMS as part of one of the trade agreements entered into.  Could we possibly revert to the pre 1996 rules, whereby the margin on transport to EU destinations was zero-rated?

TOMS is just one of the aspects of VAT which has potentially been affected of the ramifications of BREXIT. The development of UK VAT laws has so intrinsically been driven by EU law since 1973 that when BREXIT was announced I did consider the VAT law implications would be a big issue in the coming tax horizon.  Whether TOMS illicit a current negative or positive from you, it would be a mistake to not keep appraised of the potential changes and how this may affect your business. It is not just those tour operators who sell holidays inside the EU that need to be aware, but also those who currently sell holidays outside the EU and benefit from the zero rating of margin on those sales.

Should you have any additional questions relating to any points raised in this post, please contact a member of the travel and tax team at WHA.