We understand that HMRC has confirmed that once the Brexit transition period ends on 1 January 2021, the VAT charged on package tours and holidays through the Tour Operator Margin Scheme (TOMS) on travel outside of the UK will be zero rated.
The announcement comes after discussions between ABTA and HMRC and removes a crucial area of uncertainty for many travel businesses.
Through TOMS, UK tour operators only account for VAT on their profit margin (ie the difference between the amount they receive from customers and the amount they pay suppliers).
It has been agreed by HMRC on the assumption of a possible no deal with the EU on TOMS. In the event of a no deal Brexit scenario, a new UK TOMS scheme will be introduced which will require payment of TOMS VAT only on UK holidays but not on package holidays outside the UK.