British travel companies and tax experts told
EuroBTN this week they are set to overcome a value-added tax rule change which threatened to push up hotel costs by 17.5 percent for corporate clients paying through bill-backs.
Under a bill-back arrangement, a corporate guest checking out of a hotel does not settle the bill on departure. Instead, the hotel sends the invoice to the travel management company or other intermediary that booked the stay. The TMC settles up with the hotel and then sends one monthly bill covering all hotel reservations to the client. An estimated 30 percent of corporate hotel bookings in the United Kingdom are settled through bill-backs.
However, a rule change introduced by Her Majesty's Revenue and Customs on Jan. 1 meant it was no longer possible for clients to recover the 17.5 percent VAT charged by hotels when paying through bill-back. The European Commission told HMRC that it must stop allowing U.K. travel agents to opt out of the Tour Operators' Margin Scheme. This is a complex mechanism aimed primarily at the leisure market, enabling agents to avoid charging VAT on their services to customers but which also means business clients cannot recover the VAT in turn.
Business travel industry representatives now believe they have agreed upon a workaround with HMRC. "We are confident there will be an agreement on a form of documentation which will keep disruption to a minimum but allow the client to continue to recover VAT on hotel costs," said David Bennett, a partner specializing in VAT issues for the travel industry with accountancy firm Saffery Champness.
Chris Gibson, tax director for HRG, concurred. "With bill-back, the hotel bills the TMC, which acts as paying agent," he said. "Customs was concerned that the hotel invoice to the TMC and the invoice from the TMC to the customer made it look as if the TMC was buying and selling. Changes to TOMS made that look VAT noncompliant.
"The solution will be that the hotel invoice to us essentially becomes a VAT invoice for the client. It will clearly identify that the recipient of the service is the client and we are simply a payment processor. The cash flow doesn't change, just the format of the paperwork," Gibson said.
Bennett added that corporate buyers with U.K. operations using bill-backs should verify with their hotel booking intermediary that it is operating in a way in which they can recover VAT.
The ending of the TOMS opt-out also has affected the ability of corporates to recover VAT on hotel, meal and other VAT-liable costs when booking meetings through meetings organizers and other third parties
(EuroBTN, Sept. 30, 2009).