The tour operators margin scheme (TOMS) is used by businesses in the travel and leisure sector. Earlier this year HMRC changed its policy on the treatment of retained deposits, such as when a customer doesn’t turn up at a hotel to use the room as booked.
From 1 March 2019 HMRC’s advice was that the retained deposit income had to be included in the TOMS VAT calculation. HMRC has now changed its guidance on forfeited deposits and cancellation fees, but outcome depends on whether the business uses method 1 or method 2 of TOMS.
Method 1 is more widely used, and requires the business to recognise the income when the customer either arrives or departs. If the customer never arrives no tax point arises, and as such the forfeited deposit is not included in the TOMS calculation.
Where you have included deposit income in the TOMS calculations since 1 March 2019 it can correct that error on their next VAT return. If the amount of VAT exceeds £10,000 it needs to be separately disclosed to HMRC.
Written by the Tax Advice Network