Revenue & Customs Brief 21/10

Tour Operators’ Margin Scheme and the treatment of 'hotel billback' transactions

Following changes to the Tour Operators’ Margin Scheme (TOMS) from 1 January 2010, this Revenue & Customs Brief sets out details of an agreement with representative bodies of the business travel sector about invoicing for supplies under the arrangement known as 'hotel billback'.

TOMS is a special VAT accounting scheme applying to certain designated travel supplies such as accommodation and transport that are bought in and sold on by businesses. Under the scheme, businesses are unable to recover VAT charged on their purchases but account for VAT on their supplies only on their margin. This means that invoices for these supplies cannot show the VAT element, which becomes sticking tax to business customers.

Under the ‘hotel billback’ arrangement, hotel booking agents book accommodation on behalf of their business client. The hotel issues a VAT invoice for the accommodation to the booking agents, who recover the VAT charged and then issue a VAT invoice to the business traveller, charging VAT on both the accommodation and their commission.

Without specific provisions in place, the VAT on such supplies should have been accounted for under the TOMS. Until the end of 2009, UK legislation provided for businesses making supplies of travel services to opt out of TOMS where the supplies were made to business customers for their own consumption, thus allowing the business customers to recover VAT on these supplies (subject to normal rules). However, with effect from 1 January 2010, a number of changes were introduced to the TOMS including withdrawal of the business to business opt out, to comply with EU law.

This means that hotel booking agents who receive invoices in their own name for hotel accommodation and recover the VAT charged must now account for VAT on their onward supplies under the TOMS and, in turn, their business customers will incur sticking tax.

However, it is entirely open to hotel booking agents to act in a disclosed capacity, with the hotels supplying accommodation direct to their business clients, rather than buy in and supply the accommodation themselves. Following separate approaches by the Hotel Booking Agents Association and the Guild of Travel Management Companies, we have agreed the arrangements detailed below where agents operate in this way. These arrangements are available generally to all business travel agents that wish to adopt them.

The agreed arrangements are:

  • Invoices from hotels will be addressed c/o the hotel booking agent for payment. (This is to indicate that the invoice has been issued to the hotel booking agent in its capacity as an agent.)
  • The booking field on the hotel invoice will identify the hotel guest, their employer and will ideally carry a unique reference number. (Until hotels can address their invoices directly to their business customers, it may be necessary for hotel booking agents to enter an employer identification number on the invoice.)
  • The hotel booking agent will arrange for payment of the invoice(s) but will not recover the input tax thereon.
  • The hotel booking agent will send the customer a payment request/statement of the expenditure incurred by the hotel booking agent on its behalf, separately identifying the value of its supplies, VAT, etc.
  • The payment request/statement should say something along the lines of 'The VAT shown is your input tax which can be reclaimed subject to the normal rules'.
  • The customer will use the payment request/statement as a basis for their input tax reclaim.
  • The hotel booking agent will retain the original hotel invoices and these will be made available if evidence of entitlement is required by VAT staff.
  • The hotel booking agent will send a VAT invoice for its own services, plus the VAT. This may be consolidated with the statement of hotel charges, or it can be a separate document.
  • The hotel booking agent will charge its client the exact amount charged by the billback supplier, as a disbursement.

Issued 21 May 2010