Bolt/Sonder and the VAT Tour Operators Margin Scheme
Could the above decisions result in positive and negative outcomes for the UK travel industry?
Following the Sonder Europe Ltd VATtribunal decision ([2023] UKFTT 610 (TC)), Bolt has now been successful, in the First-Tier Tribunal (Bolt Services UK Ltd v HMRC [2023] UKFTT 1043 (TC)), in arguing that its supplies fall within the VAT Tour Operators Margins Scheme (TOMS), so that VAT is only due on the margin between the consumer payment and the amounts remitted to the underlying drivers.
As a result, the UK court (relying on EU VAT law principles) has now ruled that TOMS can be applied to the supply of both serviced accommodation supplied for short-term stays and the supply of passenger transport for journeys similar to taxi rides.
Both turned on the question of whether Sonder/Bolt significantly changed the nature of the supply between ‘buying-in’ the services and the selling them on, which is referenced in the UK (but not the EU VAT legislation) as material alteration and outside of TOMS, whilst Bolt also considered whether it matters that the customer rather than the supplier determines the start and end destinations on booking (for example, does the supplier have to sell a pre-determined route for TOMS to apply?).
These principles have, historically, been used by some travel businesses to help reduce the overall TOMS liability (for example, keeping VAT zero rating on supplies of qualifying passenger transport where the margin is otherwise subject to standard rated VAT), and the tribunal decisions may now bring these into doubt. Hence, whilst this is good for Sonder and Bolt, could it have a negative impact for others?
I have no doubt these will be discussed and analysed further if/when, as expected, HMRC appeal the Bolt decision to the Upper Tribunal (having already appealed the earlier Sonder decision).
My concern however, is the broader environment in which these decisions have been made – and if, following Brexit, where the margin on all supplies outside the UK is now zero rated, HMRC/HM Treasury could review whether in fact the UK still needs TOMS legislation?
In some ways, withdrawing it could be good news for the MICE and TMC/corporate travel suppliers, who have long had challenges in having to work around TOMS. However, if this also results in non-UK suppliers no longer being able to use TOMS to avoid registering in the UK under the normal VAT place of supply rules when selling UK services, could this negatively impact the inbound tourism industry?
Also, with the EU Commission still pushing for deemed supplier rules for businesses involved in the supply of short-term accommodation and passenger transport services, such as those in question, could the UK implement its own changes as a means of limiting the impact of these decisions going forward?
Implementing new laws along these lines can be challenging, hence the EU’s delay in finalising any new legislation, but it has been done in some countries, such as Canada, and it would not be the first time HMRC has changed the UK VAT laws to limit the impact of a defeat in the courts (which is possibly easier to do now without the EU law restrictions).
Therefore, could Sonder’s and Bolt’s success be short-lived, and lead to both negative and positive consequences across the travel industry as a whole?
Home >Articles > Bolt/Sonder and the VAT Tour Operators Margin Scheme
Bolt/Sonder and the VAT Tour Operators Margin Scheme
Could the above decisions result in positive and negative outcomes for the UK travel industry?
Following the Sonder Europe Ltd VATtribunal decision ([2023] UKFTT 610 (TC)), Bolt has now been successful, in the First-Tier Tribunal (Bolt Services UK Ltd v HMRC [2023] UKFTT 1043 (TC)), in arguing that its supplies fall within the VAT Tour Operators Margins Scheme (TOMS), so that VAT is only due on the margin between the consumer payment and the amounts remitted to the underlying drivers.
As a result, the UK court (relying on EU VAT law principles) has now ruled that TOMS can be applied to the supply of both serviced accommodation supplied for short-term stays and the supply of passenger transport for journeys similar to taxi rides.
Both turned on the question of whether Sonder/Bolt significantly changed the nature of the supply between ‘buying-in’ the services and the selling them on, which is referenced in the UK (but not the EU VAT legislation) as material alteration and outside of TOMS, whilst Bolt also considered whether it matters that the customer rather than the supplier determines the start and end destinations on booking (for example, does the supplier have to sell a pre-determined route for TOMS to apply?).
These principles have, historically, been used by some travel businesses to help reduce the overall TOMS liability (for example, keeping VAT zero rating on supplies of qualifying passenger transport where the margin is otherwise subject to standard rated VAT), and the tribunal decisions may now bring these into doubt. Hence, whilst this is good for Sonder and Bolt, could it have a negative impact for others?
I have no doubt these will be discussed and analysed further if/when, as expected, HMRC appeal the Bolt decision to the Upper Tribunal (having already appealed the earlier Sonder decision).
My concern however, is the broader environment in which these decisions have been made – and if, following Brexit, where the margin on all supplies outside the UK is now zero rated, HMRC/HM Treasury could review whether in fact the UK still needs TOMS legislation?
In some ways, withdrawing it could be good news for the MICE and TMC/corporate travel suppliers, who have long had challenges in having to work around TOMS. However, if this also results in non-UK suppliers no longer being able to use TOMS to avoid registering in the UK under the normal VAT place of supply rules when selling UK services, could this negatively impact the inbound tourism industry?
Also, with the EU Commission still pushing for deemed supplier rules for businesses involved in the supply of short-term accommodation and passenger transport services, such as those in question, could the UK implement its own changes as a means of limiting the impact of these decisions going forward?
Implementing new laws along these lines can be challenging, hence the EU’s delay in finalising any new legislation, but it has been done in some countries, such as Canada, and it would not be the first time HMRC has changed the UK VAT laws to limit the impact of a defeat in the courts (which is possibly easier to do now without the EU law restrictions).
Therefore, could Sonder’s and Bolt’s success be short-lived, and lead to both negative and positive consequences across the travel industry as a whole?
