VAT spoils holidays – Deloitte & Touche claims pay too much

UK tour operators are wasting millions of pounds each year in VAT overpayments, according to Deloitte and Touche. Deloittes claimed it is unfair for tour operators to pay 17.5% VAT on the brochure price of each holiday when so many holidays are sold at discounted rates.

The position is even worse, said the firm, when travel agents offer discounts in conjunction with the arrangement of travel insurance. Under such circumstances, the discount attracts VAT at 17.5%, while the insurance is also taxed at the same rate. David Bennett, head of the Deloittes’ indirect taxes travel team, said: ‘We firmly believe these discounts should not be subject to VAT.

‘We would advise all tour operators to seriously consider whether or not they have been overpaying VAT. If they have, we urge them to seek professional advice and lodge a repayment claim with Customs and Excise.’

A Customs spokeswoman said: ‘The issue here is the structure of the travel industry and a lack of communication between tour operators and travel agents. But if tour operators themselves are selling holidays at a discounted price and accounted for at the brochure price we will look at the matter very closely.’

While endorsing the basic principle behind Deloittes’ argument, other VAT specialists insisted the authorities are more flexible. ‘Customs knows VAT has to be charged on what the customer spends. We’ve had no problems securing refunds,’ said Chris Fyles, who deals with KPMG’s tour operator clients.

Martin Pooley, a tour operators margin scheme consultant, concluded there was a ‘germ of truth’ in Deloittes’ picture of an unjust VAT system.

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