It’s not the destination, it’s the VAT

The impact of the recession on the travel industry is not unknown, but much
to the misfortune of travel agents across the European Union, the current
climate is unlikely to be improved by a package of tax reforms which has
triggered a peculiar row over VAT.

Of most concern is whether UK-based travel agents will incur the VAT rate of
where a business traveller is based or the country where the traveller will be
staying. This is being referred to as the property vs intermediary rule.

Stephen Coleclough, VAT partner at
PricewaterhouseCoopers, says
because corporate travel represents such a large market, the ‘grab for cash’ by
EU governments in collecting their share of VAT is gathering pace under the
package.

‘I’ve heard that some countries are being a bit silly… some are trying to say
that if a UK travel agency organises a hotel room in France, the French VAT rate
should be applied. This is one of a myriad of problems coming out of the VAT
package,’ he says.

David Bennett, partner at
Saffery Champness and VAT
adviser to the Association of
British Travel Agents, says he has grave fears for agents if the property
rule is adopted, as it means UK suppliers will need to register for VAT across
the other 26 member states.

He estimates this will cost an agent a minimum of £1,000 a year to maintain,
not withstanding costs to alter accounting systems, additional reporting
obligations and complying with VAT-law across different member states.

‘We’re very concerned about this. The intermediary rule gets rid of those
problems immediately. By treating it as a property supply, it’s adding
complexity and more compliance for no advantage at all,’ he says.

It is hoped an EU-wide VAT committee meeting next month will resolve the
issue of whether the property or intermediary rule is to be applied.

Further exacerbating apprehension around the changes is the fact many
business clients of VAT advisers are yet to be informed.

Marc Welby, VAT partner at
BDO Stoy Hayward, says
HM Revenue and
Customs formally announced the package in the week leading to Easter and,
with the Budget being held shortly thereafter, many operators directly affected
remain unaware of the administrative and financial impacts that lie ahead.

‘There is always a fine balance to be struck and no matter how much a change
is publicised more could’ve been done,’ he says.