Recent VAT developments for travel and serviced apartment businesses
posted 5th January 2023
A very happy new year to one and all! Having been a little bit swamped prior to Christmas with submitting VAT repayment requests by the 31 December deadline (amidst some fairly vague guidance from HMRC on the new online submission system for post-Brexit VAT claims for unregistered overseas businesses) we have several updates to bring you for the new year...
German VAT registrations
A number of years ago (coincidently, about the same number of years ago that the UK left the EU), Germany decided that under its revised interpretation of VAT law, non-EU tour operators should not be able to rely on the TOMS rules. This means that non EU suppliers who supply travel services within Germany to the person using the service would be required to register for VAT in Germany and account for German VAT on their services. The initial plan was to bring this in in 2021...which became 2022...which became 2023. Towards the end of last year, there was still a large amount of uncertainty as to the basis under which non EU tour operators would be required to register, and for what sales the new rules would apply to. For example, there was a suggestion that the rules would only apply to sales to EU individuals, there were issues as to the time of supply, and the question of input VAT recovery for purchases already made. This seemed alarmingly unclear given that 1 January 2023 was the proposed new start date of these rules.
Luckily, this requirement has now been pushed back to 1 January 2024, and we hope to receive clarity during this year as to how the new rules will operate. We would still advise businesses in the meantime to:
- Ensure you budget for possible German VAT for all trips you quote for now, which will take place (or will be invoiced) on or after 1 January 2024 and review any trips where pricing has already been agreed. You may wish to quote prices "excl VAT" where possible.
- Ensure you request proper VAT invoices from German suppliers for all purchases relating to trips taking place post 1 January 2024.
- Ensure that your systems and procedures can cope with the possible requirement to account for German output VAT and collect and retain German purchase invoices from 1 January 2024.
Plans to make online travel booking agent "platforms" responsible for paying VAT on accommodation and transport in the EU
The European Commission has published proposals to make travel booking "platforms" pay local EU VAT from 1 January 2025. The proposal is that platforms located anywhere in the world, including the UK, will be required to pay EU VAT when their platform provides the means to sell short term accommodation rental or passenger transport, if the accommodation/transport service is in the EU and where the service provider itself does not pay VAT. This is likely to affect online booking platforms such as OTAs, holiday home rental agencies and other similar businesses.
At present, if a business acts as principal in selling accommodation or transport, it is required to account for VAT in the place in which the service takes place (or, in many cases, rely on the TOMS rules to avoid this charge). Many online platforms act as disclosed agent for the service provider instead such that they are not currently required to pay VAT locally. Strictly speaking, in such cases the service provider themselves should often be registered and account for VAT locally. However, sometimes due to a lack of knowledge (to be generous) or a difference in the rules between countries, this is not the case and this can mean distortions of competition (for example, between hotels and people renting their property individually).
From the current proposals, we understand that in these cases, the platforms acting as disclosed agent will be treated as making a deemed supply and so will be required to account for VAT as if they were themselves the service provider (but assuming using their own selling price). We understand that they will not be allowed to account for VAT within TOMS and so would need to instead account for local VAT to each member state, assuming that country requires payment for that service (some, for example, have exemptions for short term lettings at the moment, although it is proposed that this exemption be withdrawn). I expect that the platform would not have any VAT to recover on its purchase by definition, so this would be a considerable dent to its profits unless it reduced its payments to the service providers by the amount of tax due. The proposals allow for platforms to be excused the need to pay VAT in some circumstances (e.g. where its role is limited).
We don't currently have a definition of what "platform" will entail, and so we must for the time being interpret this strictly and assume it may include all businesses selling accommodation and transport as agent online.
You will note that there are lots of "assumptions" and "expectations" here. Basically, we don't know the details - I don't even think the Commission does yet as it is still to be reviewed by Member States! We hope that this will all become clearer over the coming months.
However, if this does go ahead, it is likely to bring a huge amount of change for online travel agents and similar. As such, online providers of these services should take not of these proposals and the updates over the coming months to ensure that any price agreements with service providers are appropriate and consider whether their the systems could cope with potential payments of VAT to all member states in which services are sold.
There is still considerable uncertainty about the effect of these proposals, and whether they will actually go ahead after consideration by Member States. However, we understand that the Commission is confident that they will be accepted and therefore it is important now to consider how this may affect your business.
VAT Tribunal case considering the application of TOMS for serviced apartment operators
We are aware of an upcoming Tribunal case which will consider the circumstances in which the TOMS rules can apply to the typical arrangements under which serviced apartment operators sell short term accommodation. We understand that this will focus on whether the fact that a business "buys in" a long lease and "sells on" short term accommodation constitutes material alteration for TOMS purposes, and whether the business must be a "tour operator" in order to use TOMS. This could potentially have far-reaching consequences for the wider industry if this second point is decided in HMRC's favour.
We have previously written about HMRC's inconsistent attitude to the use of TOMS for serviced apartment operators and we hope that this case, whatever its outcome, will give some clarity and consistency for operators. It has been difficult for all involved to have one set of rules in public, but the knowledge that HMRC apply completely different definitions behind the scenes, which we have pointed out to HMRC on many occasions is unfair and frustrating for our clients. We haven't enjoyed saying "we don't know" to operators and not being able to give clarity. We expect that once the case has been heard and a decision has been reached, it will mean that we can help operators plan their business structure with more certainty.
We are planning to run a webinar once we have a decision - please let us know if you would like to be on our distribution list for the link to the webinar.