Should I Stay or Should I Go?
There’s an appeal due next month following Sonder Europe’s success at the FTT. Sonder rent out holiday accommodation that they themselves have rented inward from third parties. Sonder managed the properties directly, sometimes adding furniture or decorating it to bring it up to their standards. Their argument was that they were buying in and reselling holiday accommodation and that it should fall under the Tour Operators Margin Scheme (‘TOMS’), which allows tour operators to only pay VAT on the margin between the cost of the accommodation and the selling price.
HMRC considered VAT should be due on the full selling price and challenged the use of TOMS was on several points:
On the nature of the accommodation being acquired, they argued that the leasing of leasing of apartments did not constitute "bought-in" holiday accommodation.
That Sonder materially altered the landlord's supply from exempt land to standard-rated hotel accommodation.
That a tour operator must buy-in identical accommodation to that which it provides to travellers.
That Sonder did not fall within the definition of a tour operator.
In the end, the court rejected all these arguments, confirming Sonder’s status as a tour operator and that the leased apartments met the criteria for designed travel services. The decision carried broader implications for businesses operating in the travel and accommodation sector, and importantly emphasised the flexibility and inclusivity of the TOMS framework, which we have discussed before in regards to Uber and Bolt.
We will be paying close attention, and will report an update following the outcome of the appeal.
There’s an appeal due next month following Sonder Europe’s success at the FTT. Sonder rent out holiday accommodation that they themselves have rented inward from third parties. Sonder managed the properties directly, sometimes adding furniture or decorating it to bring it up to their standards. Their argument was that they were buying in and reselling holiday accommodation and that it should fall under the Tour Operators Margin Scheme (‘TOMS’), which allows tour operators to only pay VAT on the margin between the cost of the accommodation and the selling price.
HMRC considered VAT should be due on the full selling price and challenged the use of TOMS was on several points:
On the nature of the accommodation being acquired, they argued that the leasing of leasing of apartments did not constitute "bought-in" holiday accommodation.
That Sonder materially altered the landlord's supply from exempt land to standard-rated hotel accommodation.
That a tour operator must buy-in identical accommodation to that which it provides to travellers.
That Sonder did not fall within the definition of a tour operator.
In the end, the court rejected all these arguments, confirming Sonder’s status as a tour operator and that the leased apartments met the criteria for designed travel services. The decision carried broader implications for businesses operating in the travel and accommodation sector, and importantly emphasised the flexibility and inclusivity of the TOMS framework, which we have discussed before in regards to Uber and Bolt.
We will be paying close attention, and will report an update following the outcome of the appeal.
Pushing the Threshold?
Last month we talked about the VAT implications of the Budget, and we have noted with interest some commentary around whether the Government should have increased the VAT registration threshold with some calling for an increase to as much as £250k to help stimulate the economy, by removing the burden and ‘cliff edge’ from smaller businesses.
However, doing so is not straightforward due to the restrictions placed on the UK Government as a consequence of the post-Brexit legal agreement with the EU regarding Northern Ireland. This means that whilst the UK Government could in theory increase the VAT registration limit above the current £90k for Great Britain, it would result in a two-tier VAT regime within the UK, as the Windsor Framework does not permit the VAT registration threshold in Northern Ireland to exceed the EU maximum of €100k. This is in order to preserve the integrity of the EU Single Market and not give Northern Irish businesses a tax advantage over EU businesses.
Given the UK Government is, as far as is possible, keen to maintain a uniform VAT regime throughout the UK, this suggests that the current £90k threshold is as high as we will see, at least unless there are more post-Brexit deals. This once again highlights that Brexit is an ongoing process, rather than a single event - and one which has certain far-reaching and unexpected consequences.
Last month we talked about the VAT implications of the Budget, and we have noted with interest some commentary around whether the Government should have increased the VAT registration threshold with some calling for an increase to as much as £250k to help stimulate the economy, by removing the burden and ‘cliff edge’ from smaller businesses.
However, doing so is not straightforward due to the restrictions placed on the UK Government as a consequence of the post-Brexit legal agreement with the EU regarding Northern Ireland. This means that whilst the UK Government could in theory increase the VAT registration limit above the current £90k for Great Britain, it would result in a two-tier VAT regime within the UK, as the Windsor Framework does not permit the VAT registration threshold in Northern Ireland to exceed the EU maximum of €100k. This is in order to preserve the integrity of the EU Single Market and not give Northern Irish businesses a tax advantage over EU businesses.
Given the UK Government is, as far as is possible, keen to maintain a uniform VAT regime throughout the UK, this suggests that the current £90k threshold is as high as we will see, at least unless there are more post-Brexit deals. This once again highlights that Brexit is an ongoing process, rather than a single event - and one which has certain far-reaching and unexpected consequences.
The VITA View
This month we launched our new blog, where we will provide regular in-depth commentary on recent developments in the VAT & Indirect Tax world. We’re kicking off with CBAM, but will be covering other indirect tax topics as we go.
Click here to read more
This month we launched our new blog, where we will provide regular in-depth commentary on recent developments in the VAT & Indirect Tax world. We’re kicking off with CBAM, but will be covering other indirect tax topics as we go.
Click here to read more
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