7. What are the potential risks and areas of uncertainty?
There is a risk that UK tour operators will at some point in the future need to register and account for VAT locally in the EU. Strictly speaking, this has always been necessary because non-EU businesses are not protected by the simplicity of TOMS. However, this is another VAT "grey area" and in practice, EU countries have not yet taken the point on making non-EU businesses register and account for VAT locally. Most likely, this is because it has been too difficult to enforce.
The concern here is that it may become much more straightforward to enforce on UK businesses, whose VAT affairs are already within the EU system and are much "closer to home". This area as a whole is something the EU Commission has been considering ever since KPMG's TOMS Reform study of 2017, and it may become more topical post-Brexit. There has not yet been anything announced on this, and my guess is that if it is to happen, it will not be for some time yet. However, I would keep this in mind going forward.
For UK travel, there is potentially a risk of price undercuts from EU tour operators who will now be treating the margin made on these produced as zero rated within their own TOMS calculation. We do not yet know if the UK will impose VAT of some description on EU operators
I would recommend every business which is currently using TOMS to review their position in light of the proposed changes to confirm:
- You understand how the changes will affect your VAT liability so that you do not over- or under-account for VAT going forward.
- You ensure your systems can pick up any changes prior to 1 January 2021.
- You consider possible future risks and how these may affect your business.
- You ensure that your past TOMS position is up to date and that, if VAT has been overpaid under TOMS in the past, you seek to rectify this.
I hope this brings you some good news on what has been a very difficult year for the travel industry :-) I hope that these developments will help your business pick up the pieces in 2021 and beyond!