Earlier this year, HMRC updated TOMS Notice 709/5 to confirm that cancellation income should from 1 March 2019, unfortunately, be included within TOMS turnover. This change was not unexpected given the announcement in October's Budget that prepayments for supplies which have not been fulfilled would fall within the scope of VAT. However, this will still affect those of you completing TOMS calculations starting, or spanning 1 March 2019.
We do not agree with this, as seems to be the common consensus in the VAT advisory world (albeit when speaking with the EU Commission it was clear they don't share this view!). The reason that this is controversial is that, in order to be within the scope of VAT, "something" must be done for a "consideration (usually money). If a service is cancelled, logically nothing has, or will be, done. We are expecting this to be challenged and so this may not be the final position. However, for prudence, I would for the time being advise that cancellation income is included post 1 March.
What is clearly a little ridiculous is that the "time of supply" for TOMS purposes is departure date, and cancelled bookings will never "depart". There is nothing further within the TOMS Notice as to how HMRC expect cancelled bookings to be allocated between financial years (or indeed spanning the 1 March 2019 period). HMRC's general brief on unfulfilled supplies suggested it should relate to payment date. However, many tour operators do not readily have a method of separating cancellation income to record by payment date (and indeed payment date may be in a different financial year to departure date which could cause complicated amendments for cancellations). With this in mind, departure date, the normal time of supply, is likely to be more practical here.