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Following changes to the tour operators’ margin scheme (TOMS), HMRC have set out details of an agreement with representative bodies of the business travel sector about invoicing for supplies under the arrangement known as hotel billback.
Under the arrangement, hotel booking agents reserve accommodation on behalf of a business client. The hotel issues a VAT invoice for the accommodation to the booking agents, who recover the tax charged and then issue a VAT invoice to the business traveller, charging the tax on both the accommodation and the commission.
A number of changes were made to the TOMS with effect from 1 January 2010, including the withdrawal of the business to business opt out, to comply with EU law.
As a result, 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, HMRC have agreed the following arrangements where agents operate in this way:
- Invoices from hotels will be addressed care of the hotel booking agent for payment.
- The booking field on the hotel invoice will identify the hotel guest, his employer and will ideally carry a unique reference number.
- The hotel booking agent will arrange for payment of the invoice 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 customer will use the payment request/statement as a basis for his 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.
‘VAT issues often get very complicated when three parties are involved, both in relation to output tax and input tax matters’, said Neil Warren, an independent VAT consultant.
‘It is important that all parties involved in such deals are very clear about the VAT treatment and rules in place. TOMS continues to be a very complex aspect of the VAT system and specialist advice is invaluable.’
