Tour Operators Margin Scheme (“TOMS”)

Background

The question of whether Air Charter Brokers supplies are subject to the normal VAT rules on place of supply and qualifying aircraft, or subject to the VAT Tour Operators Margin Scheme (TOMS), has been discussed between BACA, its members, and HM Revenue and Customs (HMRC) at various points over the last 10 or so years. The last example was in 2009, where an HMRC officer appeared to confirm that the charters are subject to VAT under the “normal” VAT rules as opposed to TOMS (as an exception to the normal rules).

More recently, however, HMRC have notified a number of Air Charter Brokers that, irrespective of the definition of the supply as a hire of a means of transport or passenger transport, their supplies are liable to VAT under TOMS.

Consequently, in May 2013, BACA, on behalf of its members, held discussions with HMRC Policy Unit as to the application of VAT to supplies made by Air Charter Brokers.

TOMS

HMRC Policy stressed that, whilst TOMS was intended to apply to Tour Operators, due to the wording of the legislation, it can apply to all sales which fall within the definition of “designated travel services”. This can include both the “hire of a means of transport” and the sale/supply of “passenger transport”.

However, HMRC Policy also stated that TOMS will only apply where a business “buys the travel service in and then resells it on in its own name (either as a principal or an undisclosed agent) and without material alteration”, and that TOMS does not apply to a business acting as a disclosed agent.

Agent/Intermediary for VAT

With regards to how this then applies to the application of VAT, BACA provided HMRC policy with a clear description of the specific nature of Air Charter Brokers’ standard business practices, and agreed the following with regards to how Brokers will meet the requirements for acting as a disclosed agent and, therefore, liable to account for VAT under the normal (agent) rules.

In turn, HMRC confirmed that for an Air Charter Broker to be acting as a disclosed agent, it is fundamental that the brokers make their status as intermediaries clear to clients and operators.

In establishing this, HMRC agreed that what matters is the commercial reality of the relationship between the aircraft operating company, the broker and the customer, as agreed by all the parties involved, evidenced by clear disclosure on contracts, quotations, websites and publicity material that the company is a broker, with declarations of who the principal is (when known).

HMRC also confirmed that another major factor in determining if a business was acting as a disclosed agent was that the broker does not take on significant commercial risk in their transactions. On this last point, HMRC provided the example of a hotel booking company booking hotel room availability in advance, in the hope of selling it to someone else later.

In summary, therefore, HMRC confirmed that a broker satisfying the requirements for acting as a disclosed agent would be liable to account for VAT on its supplies under the normal rules and not TOMS.

Since May 2013, whilst BACA’s discussions were ongoing, HMRC have approached a large UK charter broker (and BACA member) and endeavoured to establish that TOMS applies to its supplies. Currently, this approach is subject to continued discussions between the broker and HMRC and BACA is awaiting the outcome of these discussions before determining whether BACA’s own discussions with HMRC should continue.

Further updates will be made available from time to time.