An Organisation for all
Accountants in Practice

New advice on TOMS

HMRC has issued fresh guidance for anyone who has paid too much VAT (from 1 March 2019) as a result of an error in the Tour Operators Margin Scheme (VAT Notice 709/5).

From 1 March 2019, changes to HMRC’s VAT policy on retained payments and deposits (see Revenue and Customs Brief 13 (2018)) ensured that businesses account for VAT on retained deposits when customers do not take up supplies.

The Revenue stated: “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 two 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 Notice 709/5 for more on this.

The correct treatment of payments made for unfulfilled TOMS supplies

On this HMRC said: “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.”

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 procedure.

‘How to correct VAT errors and make adjustments or claims (VAT Notice 700/45)’ explains this – go to https://tinyurl.com/y377rf82.

By HMRC

hmrc logo