Operators under threat from VAT ruling
Some UK tour operators might be forced to close and many will have to significantly change the way they do business following the results of a landmark European VAT case today.
As feared, the European Court of Justice has decided that wholesale travel transactions should fall within TOMS, pushing up VAT for many companies and potentially putting some out of business altogether.
Under the current system, wholesalers are able to sell the flight or passenger transport element of an EU package without VAT, under the ‘VAT Transport Company Scheme’.
But once the new rules have come into force, EU travel wholesalers will have to account for VAT from the whole profit margin on sales of EU travel in the country in which they are established.
"For some tour operators the increased VAT cost could be enough to make the business unviable," said expert Julie Park, MD for The VAT Consultancy.
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She said almost all operators in the UK currently rely on the ‘VAT Transport Company Scheme’.
"If you assume an operator has a 50-50 split between the flight/pax transport and hotel element of a package cost wise, their VAT bill will double. Margins are pretty low in this industry in some cases so this could be significant," she said.
"Tour operators will be forced to review their business to determine if they can adopt an alternative model such as relocating the business to a non-EU location…or the business may prefer to continue operating in the UK but under a disclosed agency model or potentially the alternative ‘Agency Option’ which facilitates the use of net rates."
Although it could be months before the rules come into force, Park urged operators to start taking action now, given the complexity associated with changes to business models.
Meanwhile, ABTA has asked for a meeting with HM Revenue and Customs to get a clearer picture of this week’s ruling.
Chief executive Mark Tanzer said the decision has "potentially significant trading and administrative cost implications".
"We will now be looking in detail at the decision and will issue further information to affected members as soon as we have fully digested its implications," he said.
by Bev Fearis
Bev
Editor in chief Bev Fearis has been a travel journalist for 25 years. She started her career at Travel Weekly, where she became deputy news editor, before joining Business Traveller as deputy editor and launching the magazine’s website. She has also written travel features, news and expert comment for the Guardian, Observer, Times, Telegraph, Boundless and other consumer titles and was named one of the top 50 UK travel journalists by the Press Gazette.
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