Key Facts
- •The Squa.re Limited (Appellant) appealed HMRC assessments concerning VAT calculations under the Tour Operators Margin Scheme (TOMS).
- •The dispute centered on whether TOMS allows for negative margin calculations, leading to potential VAT repayments.
- •The Appellant provided serviced apartments, often leasing from non-VAT registered owners.
- •The Appellant claimed VAT overpayment due to including the full cost of bought-in accommodation, even when resulting in a negative margin.
- •HMRC argued that TOMS doesn't permit negative margins, only a zero margin.
- •The appeal concerned the interpretation of TOMS statutory provisions and did not involve the amounts of the assessments.
Legal Principles
Member States must apply a special VAT scheme (TOMS) for travel agents using other taxable persons' supplies.
Articles 306-310, Principal VAT Directive (PVD)
TOMS treats all elements of a travel package as a single taxable supply by the travel agent, with taxable amount being the margin.
Articles 306-310, Principal VAT Directive (PVD)
UK TOMS implementation (section 53, Value Added Taxes Act 1994 (VATA), Value Added Tax (Tour Operators’) Order 1987 (TOMS Order), and Notice 709/5) specifies how the margin is calculated and precludes input tax recovery on bought-in supplies.
Section 53, VATA; TOMS Order; Notice 709/5
VAT is calculated on the price of goods/services after deduction of VAT borne directly by cost components. A negative taxable amount is conceptually impossible.
Article 1, PVD; Section 24(2), VATA
TOMS, as a special scheme, should be interpreted strictly and consistently with its objectives (avoiding multi-jurisdictional VAT registration).
First Choice Holidays v HM Customs & Excise C-149/01
Outcomes
Appeal dismissed.
TOMS does not permit negative margin calculations resulting in VAT repayment. While a global calculation is used, including negative margins from individual supplies is allowed, but an overall negative margin leading to repayment isn't.