Is TOMS an option for Serviced Accommodation VAT? Reply

TOMS is the Tour Operators Margin Scheme (VAT Notice 709/5).

It is a special scheme for businesses that buy-in and re-sell travel, accommodation and certain other services (see paragraph 2.9) as a principal or undisclosed agent (that is, acting in your own name).

TOMS does not apply to:
# supplies you have arranged as a disclosed agent/intermediary and your commission is readily identifiable (see paragraphs 2.14 and 6.7)
# in-house or agency supplies you make which are not packaged/supplied with margin scheme supplies (see paragraphs 2.12 and 2.13)
# supplies you make to business customers for subsequent resale by them (that is, wholesale supplies), or
# supplies that are incidental to your other supplies (see paragraph 3.6)

If you are registered for VAT, you must normally account for tax on the full selling price of your supplies, but you can reclaim the VAT charged on purchases (subject to the normal rules).

Under the TOMS, you cannot reclaim any UK or EC VAT charged on the travel services and goods you buy-in and re-supply – the tax on such goods or services is accounted for in the relevant Member State by the providers of those services (hotels, airlines and so on).
However, as a tour operator based in the UK, you only account for VAT on the margin you make on your margin scheme supplies (see paragraph 2.7), that is, the difference between the amount you receive from your customer (including any amounts paid on behalf of your customer by third parties) and the amount you pay your suppliers.

A margin scheme supply is defined in law (see paragraph 1.2) as a ‘designated travel service’.
This means it is a supply of goods or services which is:
bought in from another person and re-supplied without material alteration or further processing, and
supplied by a tour operator from an establishment in the UK, for the direct benefit of a traveller – see paragraph 2.8

The following are always margin scheme supplies:
# accommodation
# passenger transport
# hire of a means of transport
# trips or excursions
# services of tour guides
# use of special lounges at airports

The reason why this would be useful for Serviced Accommodation is because often its done on Rent to Rent basis and the landlord supplies Residential Accommodation (which exempt from VAT), Serviced Accommodation is Vatable (if you cross the £85k threshold), so the VAT bill would be lower using TOMS. However, its not like a normal tour operator, normally they would buy in holiday accommodation not residential accommodation!

So before using TOMS you should get prior approval from HMRC after full disclosure of all the facts.

Surely in these circumstances HMRC would want the original landlord to change the status from Residential to Holiday Accommodation so that they will become subject to VAT?

steve@bicknells.net

 

What are the VAT rules for Serviced Accommodation? 1

Business couple in formal wear traveling

Residential Rent is an Exempt Supply for VAT, however, Serviced Accommodation isn’t, its treated as Holiday Accommodation.

Holiday accommodation includes, but is not restricted to, any house, flat, chalet, villa, beach hut, tent, caravan, or houseboat.

If you supply holiday accommodation, or a site for such accommodation, you must account for VAT at the standard rate on any charges that you make regardless of the length of occupation or description of the charges.

https://www.gov.uk/government/publications/vat-notice-7093-hotels-and-holiday-accommodation/vat-notice-7093-hotels-and-holiday-accommodation#holiday-homes

The problem with VAT is that if you promote your serviced accommodation to the general public it will either make it 20% more expensive for them or reduce your profit!

So lets look at somethings that might help

VAT Registration

You can’t charge VAT unless you are registered for VAT and you don’t have to register until your turnover hits £83,000.

VAT taxable turnover is the total value of everything you sell that isn’t exempt from VAT.

You must register for VAT with HM Revenue and Customs (HMRC) if it goes over the current registration threshold in a rolling 12-month period. This isn’t a fixed period like the tax year or the calendar year – it could be any period, eg the start of June to the end of May.

VAT Flat Rate Scheme

There are going to be changes to the VAT Flat Rate Scheme in April 2017 the changes are aimed mainly at low cost traders, we don’t know the full details yet.

A Low or Limited Cost Trader would spend less than 2% on gross turnover, or less than £1000 on the purchase of goods.

Assuming that the changes don’t affect Hotels and Holiday Accommodation, Flat Rate could save you VAT.

To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

With the Flat Rate Scheme:

The Flat Rate for Hotels and Accommodation is 10.5%

Example

You bill a client for £1,000, adding VAT at 20% to make £1,200 in total.

You’re selling serviced accommodation, so the VAT flat rate for your business is 10.5%.

Your flat rate payment will be 10.5% of £1,200, or £126.

Separate Businesses

Provided there are commercial reasons why you should have separate businesses or companies, then each business would have the £83,000 registration threshold

The rules are set out in HMRC manuals and in this blog

https://stevejbicknell.com/2013/10/26/are-your-businesses-really-separate-for-vat-purposes/

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation. This includes amounts debited from credit cards using details provided at the time of the booking. Where the cancellation charge takes the form of a retained deposit, you can reclaim any VAT already accounted for as an adjustment to your next return.

steve@bicknells.net