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HMRC internal manual

VAT Partial Exemption Guidance

Guidance for specific trade sectors: the travel industry: special methods: general and specific method considerations

General items for consideration

PE year-end

Where businesses account for some of their supplies under the TOMS, it would be easier if they had the same PE year-end as that for their TOMS. This way the same actual figures will be taken into consideration for both annual adjustments and they will be accounted for on the same return - that is the one after the year-end.

Supplies of insurance

Depending on how insurance is sold, it can be treated as either within or outside the travel package. If it is part of the travel package, the exempt inputs will be directly attributable to taxable supplies. Further information on this can be found in V1-23 Chapter 12 Tour Operators’ Margin Scheme.

Specific method considerations

More on particular special methods can be found in PE30000 - Partial Exemption Special Methods.

Outputs special method

An outputs-based method could be fair and reasonable, if the business considered using a special method where the full value of the underlying supplies or the full value of the package was used. This would mean the supplies would be compared on the same basis to those made as a principal outside the TOMS (see PE76200). It would also remove any distortions where difference bases were used for commission payments.

Whether the business is a tour operator or travel agent, it would have access to the data about the underlying supplies, so obtaining details of the gross values for these would not be difficult.

Transaction count special method

This may also feasible, as long as the basis for the transaction count is agreed: for example- per person rather than per invoice. However it could be cumbersome and more onerous for the businesses to use.

Floor space special method

This may be suggested where the business provides foreign currency to its customers. If the business has a designated allocated space in its business for foreign exchange transactions, then a floor space method could be suitable. However any method would also have to take into consideration space used for foreign exchange work done outside the designated area.

Time based special methods

These are not usually appropriate because they are difficult for both the businesses and officers to verify. Some businesses may use a time-based computer package, which allocates the time used for various functions. If so you need to be able to verify when a transaction begins and what happens to dead-time - that is time when no sale takes place.