During the ABTA Travel Finance Seminar last week, there was some confusion regarding Making Tax Digital (MTD) and Tour Operators Margin Scheme (TOMS). In particular, the question was raised as to the proposed staging date.
As you will likely be aware, the date in which MTD ceases as a pilot scheme and becomes live is on 1 April 2019. Therefore, from this date the vast majority of VAT registered entities will have to adhere to the rules and regulations that govern MTD.
A question was raised by a delegate attending the seminar asking:
“If TOMS was classed as an Annual VAT accounting scheme?”
… and if so,
“Could a Tour Operator adopting it apply for a 6-month deferral?”
The answer to this question was not properly addressed, which has led to a number of business owners and finance directors in the industry questioning if they are required to operate MTD from 1 April 2019.
The original question was raised as according to HM Revenue & Customs VAT Notice 700/22 it states:
“A 6-month deferral will apply to around 40,000 of businesses who fall into one of the following categories:
- ‘not for profit’ organisations that are not companies (this includes some charities)
- VAT divisions
- VAT groups (the deferral applies to the group registration only and not to any group companies that are not covered by the group registration)
- public sector entities that are required to provide additional information alongside their VAT Return (such as Government departments and NHS Trusts)
- local authorities and public corporations
- traders based overseas
- those required to make payments on account
- Annual Accounting Scheme users”
Although TOMS for VAT can be calculated on a transaction-by-transaction basis, most Tour Operators will account for it using an annual tax point date (being the quarter following a it’s year end) and estimating TOMS in advance on a quarterly basis using a fixed percentage. On this basis some have been led to believe that it is an official Annual Accounting Scheme, and therefore the 6-month referral will apply.
Having considered and researched this matter thoroughly we categorically can state that although those who adopt TOMS do require an annual calculation it is NOT strictly an Annual Accounting Scheme.
An Annual Accounting Scheme is defined as helping small businesses by allowing them to submit only one VAT Return rather than four.
With the Annual Accounting Scheme, you:
- make advance VAT payments towards your VAT bill – based on your last Return (or estimated if you are new to VAT)
- submit 1 VAT Return a year
To summarise then, if you are a Tour Operator who operates TOMS for VAT, you will NOT qualify for a 6-month deferral and will need to adhere to the rules and regulations of MTD from 1 April 2019.
What digital records should be kept for TOMS?
We have also received a number of enquiries regarding TOMS for VAT. Many have asked that due to its complexities, is it a requirement to have a full digital trail within the accounting software, including the year end TOMS calculation?
The simple answer is, no.
According to H.M Revenue & Customs VAT Notice 700/22 Section 4.1.2 for VAT Calculations made outside of software it states:
“HM Revenue & Customs recognises that there may be points during preparation of your VAT Return when calculations will have to be made outside of any software you use to keep the digital records, or there may be a need to enter data into your software from particular sources. For example, a Capital Goods Scheme adjustment calculation done in a separate spreadsheet may need some form of input by hand into the software that will send your VAT Return information to HM Revenue & Customs”.
To clarify, if you are using a HM Revenue & Customs approved software solution which uses an Application Programming Interface (API) to submit to HM Revenue & Customs via a digital tax account, then the TOMS Margin Scheme calculation can be kept outside the scope of your approved software. Adjustments can be made to reconcile your accounts, using journals which reflect the individual transactions that make up the calculation as a line total. Should HM Revenue & Customs want to review your records, then as long as such journals can be verified to a spreadsheet or calculation, then this is acceptable to HM Revenue & Customs.
Should you have any questions, please do not hesitate to contact a member of our MTD team today.
For detailed information on MTD, please refer to HMRC’s VAT Notice 700/22 here.