By Chris Photi, Head of Travel & Leisure at White Hart Associates
In late 2018 HMRC issued Revenue and Customs Brief 13 (2018) outlining HMRC’s VAT policy on retained payments and deposits, seeking to collect VAT from businesses on retained deposits when customers do not take up supplies. Prior to implementation on 1 March 2019, HMRC realised they had made an error in relation to forfeited deposits and cancellation fees that are included in Tour Operator Margin Scheme (“TOMS”) VAT calculations using departure date as the tax point. Such forfeited retained deposits and cancellation fees should not be subject to VAT.
What about Refund Credit Notes (“RCN”)?
The initial cancelled holiday or travel arrangements is not a supply for VAT purposes and therefore no TOMS VAT is due on any amounts received providing the travel organiser or operator is using the departure date tax point (as most do) – the issue of the RCN has no VAT consequences.
When the RCN is used to purchase the second holiday or travel arrangements, TOMS VAT will apply by reference to the departure date. The selling price being the value of the RCN plus any additional amounts paid or less any partial refunds given.
If the RCN is simply exchanged at a later date for cash with no holiday or travel arrangements supplied then there is no VAT payable.