Scottish Tourism sector would benefit from VAT simplification, but not from a reduced registration threshold, says Saffery Champness

Accountancy firm Saffery Champness says a report published last week by the Office for Tax Simplification (OTS) with the objective of identifying opportunities to simplify the UK VAT system shows that the Scottish tourism and events sector could benefit from some of the recommendations made.

Sean McGinness, VAT director at Saffery Champness in Edinburgh, said: “Scotland has a large conference and exhibition sector, as well as a thriving tourism industry which attracts people from all over the world to experience its heritage, golf, whisky and beautiful scenery. But VAT in the tourism sector is often misunderstood and extremely complicated. The suggestion to remove the Meetings, Incentives, Conferences and Exhibitions (MICE) sector from the Tour Operators Margin Scheme (TOMS) would be welcomed. In addition, simplified TOMS could be beneficial for the whole Scottish tourism market.

“TOMS is a special scheme for businesses that buy-in and re-sell travel, accommodation and certain other services while acting as an undisclosed agent or principal. It includes anyone who is offering this type of service, even if their main business activity is not as a traditional travel agent or tour operator. Conference hosts, hotels and other accommodation providers, including urban and rural businesses operating a holiday cottage or apartment business, can be caught by the current rules which are not optional. The rules require businesses to account for VAT on their margin rather than under ordinary VAT accounting. This can represent compliance issues and can also create a VAT cost to business customers as no VAT invoice can be issued under TOMS, meaning customers have no ability to recover VAT on business expenses. Further, small businesses caught by TOMS cannot use the flat rate scheme.”

McGinness suggests that the Government should consider a lower rate of VAT for the tourism sector post Brexit.

He said: “Other European countries have a reduced rate of VAT in the tourist sector. If implemented this would allow businesses to increase margins, or lower prices for tourists. This is currently not a recommendation of the OTS.

“However, it has been suggested that a reduced VAT registration threshold (one of the options in the OTS report) could be in this month’s budget. If reduced to £20k as is being mooted, this would have a significant impact on small tourism businesses in the highlands and other rural areas which have perhaps only one or two holiday homes, who would be required to VAT register.

“The report by OTS recommends that the Meetings Incentives Conferences and Exhibitions sector be removed from TOMS – currently structures used can accidentally fall within TOMS creating a VAT cost to the event host, or are structured as disclosed agent arrangements which are often challenged by HMRC. The change proposed would give certainty to the sector.”