ABTA Successfully Challenges HMRC on VAT on Cancellation Fees



HMRC has agreed that forfeited customer deposits and other cancellation fees retained by Travel Operators should not be subject to VAT

HM Revenue & Customs (HMRC) has agreed that forfeited customer deposits and other cancellation fees retained by Travel Operators should not be subject to VAT (provided they are using departure date as the tax point).

Representing a significant cost for many Members, this welcome decision comes after a challenge by ABTA – The Travel Association, which highlighted an error in HMRC’s policy relating to inclusion of cancellation fees in Tour Operators Margin Scheme (TOMS) calculations.

As well as saving Travel Operators tax in the future, any businesses that have paid too much VAT since 1 March 2019 can claim a refund by visiting and reviewing the new policy paper here to find the guidance on ‘How to correct VAT errors and make adjustments or claims’.

Carolyn Watson, ABTA’s Director of Finance and Resources, says, “ABTA wrote to HMRC in March after disagreement with their interpretation of the VAT principles regarding VAT on cancellation fees in the guidance to its TOMS Notice. This development is timely coming before ABTA’s seminar on ‘A Complete Guide to VAT and TOMS in Travel’ that takes place on 19 September; and our “Travel Tax Briefing” event on 23 October. I will be delighted to highlight this welcome news to Members in person.

“Thankfully the error in policy has now been updated and businesses will be paying less tax”.

 ABTA will continue to lobby the UK Government, as well as EU officials and destinations governments on issues that impact the travel and tourism industry as well as keep its Members up to date with the latest developments and advice.

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