Revenue and Customs Brief 9 (2019) - VAT Tour Operators Margin Scheme retained payments and deposits
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Published 6 September 2019
of this brief
To invite anyone who has paid HMRC too much VAT from 1 March 2019,
as a result of an error in the Tour Operators Margin Scheme (VAT Notice
709/5), to correct this.
2. Who should read this brief
Businesses making Tour Operators Margin Scheme (TOMS) supplies.
From 1 March 2019, changes to HMRC’s VAT policy on retained
payments and deposits (see Revenue
and Customs Brief 13 (2018)) ensure that businesses account for VAT
on retained deposits when customers do not take up supplies.
We updated our guidance on this topic immediately before the change
began. When doing so we made an error in Tour
Operators Margin Scheme (VAT Notice 709/5), paragraph 6.1, bullet
point 4. The error was to say that you should include all forfeited
deposits and cancellation fees in TOMS calculations when in
fact you should only include them in the circumstances described below.
The correct treatment for TOMS
supplies under UK legislation is different from other types of supply.
There are special rules for when VAT must be accounted.
Businesses making TOMS
supplies may choose between 2 different methods for determining when
their supply becomes taxable. They can either use:
- method 1 and account for VAT when the traveller departs or the
accommodation is occupied
- method 2 and account for VAT when taking payment if it exceeds
20% of the sale price – if they receive a deposit of 20% or less
then the treatment in method 1 applies
See paragraph 4.14 of VAT
4. The correct treatment of payments made
for unfulfilled TOMS
Businesses that have chosen to use method 1 must not include money
paid for supplies customers fail to take up in their TOMS calculation, as a tax
point never occurs.
Businesses that have chosen to use method 2 must include money paid
for supplies their customers fail to take up in their TOMS calculation where
they have paid more than 20% of the price of the supply. If the
customer has paid 20% or less of the price of the supply, businesses
must not include the amount received in the TOMS calculation. They
must treat this in accordance with method 1.
We are correcting paragraph 6.1 of VAT Notice 709/5 to reflect the
correct treatment for VAT on payments made for unfulfilled TOMS supplies.
5. Claims for overpaid VAT
Any business that has accounted for too much VAT from the 1 March
2019 as a result of following the incorrect advice in paragraph 6.1 of
Notice 709/05 may correct this by following the normal error correction
to correct VAT errors and make adjustments or claims (VAT Notice
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Article Published/Sorted/Amended on Scopulus 2019-09-06 23:00:00 in Tax Articles