HMRC have issued ‘Revenue and Customs Brief 9 (2019): VAT Tour Operators Margin Scheme (TOMS) and retained payments and deposits’ after an error was made in amending their guidance for calculating the VAT due for supplies subject to TOMS.
The error occurred following a change in the law. This was accounting for VAT on deposits retained in the event the supply did not take place. This came into force on 1 March 2019.
HMRC changed various notices to reflect their new policy. However, they recognised that this general rule needed modifying before applied to the scheme.
Section 4 of the Revenue and Customs Brief 9 (2019) is now up-to-date. It states the correct treatment for payments or deposits of unfulfilled supplies:
‘Businesses that have chosen to use method 1 must not include money paid for supplies their customers fail to take up in their TOMS calculation, as a tax point never occurs.
Businesses that have chosen to use method 2 must include money paid for supplies their customers fail to take up in their TOMS calculation where they have paid more than 20% of the price of the supply. If the customer has paid 20% or less of the price of the supply, businesses must not include the amount received in the TOMS calculation. They must treat this in accordance with method 1.’
Calculating the VAT due under the scheme is a complicated matter. It is likely that businesses have over or under declared VAT as a result of this error. If you think this may be the case, contact us to discuss.