U.K. Ruling To Change VAT Reclaim For Some Meetings Costs

An expert on value-added tax in the European Union has warned that corporate clients using agencies to organize events in the United Kingdom next year may no longer be able to reclaim VAT on many of their meetings costs.

Jan. 1 is the date that the U.K. government will succumb to pressure from the European Commission to abandon an opt-out for U.K.-based event organizers from the Tour Operators' Margin Scheme. TOMS, an EU-wide scheme, simplifies VAT arrangements for travel organizers in many respects, but it also prevents those organizers, and therefore their clients, from reclaiming VAT on hotel and other standard-rated expenses, such as restaurant meals.

Until now, the opt-out has helped make the United Kingdom a more attractive country for companies in non-EU markets to organize meetings because it has made VAT reclamation much more straightforward. According to David Bennett, a partner with the accountancy firm Saffery Champness, the rules governing what can and cannot be reclaimed will become much more complicated. The United Kingdom currently charges a standard rate of 15 percent, but, coincidentally, this will rise to 17.5 percent on Jan. 1.

In effect, therefore, it could become 17.5 percent more expensive for buyers to use an event agency instead of dealing directly with suppliers, unless they restructure their arrangements with the agency. "Companies will need to consider how services can be obtained in a VAT-efficient way and ensure they can recover the VAT," said Bennett. "It's a case of all three parties—client, organizer and supplier—being flexible with each other. For example, the client may start to contract directly with some of the service providers, such as hotels."

Richard Eades, managing director of Inkerman Associates, a consultant to companies in the hotel and meetings sector, advised meetings buyers to look at their entire cost of meetings, including VAT, agency costs and cash flow. He also urged buyers to review the VAT implications of meetings with their accounting departments and warned that some smaller British event companies have not understood the TOMS opt-out is coming to an end. "Clients and event management companies will have to work closer together on their budgets," he said. "Clients need to be careful about which event management company they choose."