2020 was an unprecedented year for the Travel Industry. Travel businesses in particular have been affected and have seen a significant reduction of income due to lock down measures restricting the movement of people and international travel. This year has never been a better time to think about VAT and cash flow and whether there are some simple steps that businesses could take to increase cash flow and the bottom line. Here are our top five tips.
Deferred Holidays
TOMS VAT is typically accounted when a holiday departs. Therefore, if you have had to defer holidays to 2021/22, then such income and associated costs may fall outside of this year's TOMS calculation. Make sure you only include tours departed in the TOMS year in your TOMS calculation.
Cancellations & Refunds
The number of cancelled holidays may have increased with the COVID-19 restrictions. Per HMRC’s guidance, travel businesses are still able to deduct any income received from cancelled bookings from its TOMS turnover. Make sure you are deducting such amounts from your TOMS turnover as this will reduce the TOMS margin and subsequently any TOMS VAT payable.
Direct Costs
Make sure your TOMS calculation is fit for purpose and that you are bringing in all the direct costs you can. The more direct costs you can include the lower the margin and potentially the lower the VAT payable.
Paid Or Payable Toms Costs
The legislation allows you to bring in direct costs that are paid or are payable into the TOMS annual calculation. Make sure you bring in costs that are payable even if you have not paid your suppliers within the TOMS period. This will reduce the margin and decrease the TOMS amount due.
Toms Provisional Percentage
A provisional TOMS percentage is applied to TOMS turnover on each VAT return to calculate the provisional TOMS VAT due. At the end of the TOMS year an annual calculation is completed and the TOMS VAT due for the year is crystallised. The provisional TOMS percentage is calculated based on the previous year’s TOMS liability. Due to COVID-19 it may no longer be appropriate to apply last year’s provisional TOMS percentage. This may be the case if the TOMS turnover has significantly dropped due to COVID-19. We would recommend that you review your position and if appropriate, seek permission from HMRC to use the ‘actual’ TOMS figures each VAT return period or agree a reduction in the provisional TOMS percentage based on current trading activities.
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