The current outcome of this case (Sonder Europe Limited) supports the notion that it is appropriate for companies in the rent-to-SA travel sector to apply TOMS.
TOMS permits a travel company to only pay VAT on the difference (the margin) between the buying price, for example the rent it pays for an apartment, and the selling price it charges the end customer. Using TOMS means the travel company only pays 1/6 of the margin rather than 20% on the overall selling price.
In this case, HMRC asserted that renting exempt residential accommodation and then subletting it to travellers does not fall within the TOMS.
However, the tribunal stressed that ‘any business that provides services which are the same as or comparable to those provided by travel agents or tour operators within the normal meaning of those terms is itself a travel agent or tour operator for the purposes of the EU special scheme’. They also found that the provision of furniture and minor decorating and repairs did NOT amount to a material alteration or further processing to the supply bought in.
This is a very complicated area and professional advice should be sought before any action is taken. HMRC may appeal the decision to the Upper Tribunal. Nevertheless, travel companies that are using TOMS will feel that their business model is supported by this ruling.
It is possible to go back four years to make a claim for over declared VAT, so if a company is not already using TOMS, the owners may wish to consider making a claim.