Upper Tribunal Tax and Chancery Chamber

UT/2024/000008 - [2025] UKUT 00100 (TCC)

Fecha: 27-Nov-2024

Relevant legislation

Relevant legislation

It will assist our explanation of the issues in this appeal if we begin by setting out the relevant legislation.

The TOMS is a special scheme for the purposes of VAT. Where the scheme applies, the transactions that fall within the scheme are treated as a single service supplied by the taxpayer to the traveller in the jurisdiction in which the taxpayer is established and from which the service is supplied. The value of the supply is the difference between the amount, exclusive of VAT, to be paid by the traveller and the actual cost to the taxpayer of the goods and services that are provided by other traders for the direct benefit of the traveller. The taxpayer therefore charges VAT on the supply on an amount equal to its margin. But it is not entitled to recover any input tax on the supplies made by the other traders that are used in making that supply.

10.

The TOMS was established in UK legislation by section 37A of the Value Added Tax Act 1983 (now 53 of the Value Added Tax Act 1994 (“VATA”)) and the Value Added Tax (Tour Operators) Order 1987 (SI 1987/1806), as amended by the Value Added Tax (Tour Operators) (Amendment) (EU Exit) Regulations 2019 (SI 2019/73) (the “TOMS Order”).

11.

The UK legislation is derived from and intended to implement Article 26 of Council Directive 77/388/EEC (the “Sixth Directive”). Article 26 of the Sixth Directive was repealed and replaced by Articles 306 to 310 of Council Directive 2006/112/EC (the “Principal VAT Directive” or “PVD”).

12.

Articles 306 to 310 PVD are as follows:

Article 306

Member States shall apply a special VAT scheme, in accordance with this Chapter, to transactions carried out by travel agents who deal with customers in their own name and use supplies of goods or services provided by other taxable persons, in the provision of travel facilities.

This special scheme shall not apply to travel agents where they act solely as intermediaries and to whom point (c) of the first paragraph of Article 79 applies for the purposes of calculating the taxable amount.

For the purposes of this Chapter, tour operators shall be regarded as travel agents.

Article 307

Transactions made, in accordance with the conditions laid down in Article 306, by the travel agent in respect of a journey shall be regarded as a single service supplied by the travel agent to the traveller.

The single service shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has carried out the supply of services.

Article 308

The taxable amount and the price exclusive of VAT, within the meaning of point (8) of Article 226, in respect of the single service provided by the travel agent shall be the travel agent's margin, that is to say, the difference between the total amount, exclusive of VAT, to be paid by the traveller and the actual cost to the travel agent of supplies of goods or services provided by other taxable persons, where those transactions are for the direct benefit of the traveller.

Article 309

If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the supply of services carried out by the travel agent shall be treated as an intermediary activity exempted pursuant to Article 153.

If the transactions are performed both inside and outside the Community, only that part of the travel agent's service relating to transactions outside the Community may be exempted.

Article 310

VAT charged to the travel agent by other taxable persons in respect of transactions which are referred to in Article 307 and which are for the direct benefit of the traveller shall not be deductible or refundable in any Member State.

13.

As we have mentioned above, the relevant provisions of PVD are implemented in UK legislation by section 53 VATA and the TOMS Order. Section 53 VATA provides, so far as relevant, as follows:

53.— Tour operators.

(1)

The Treasury may by order modify the application of this Act in relation to supplies of goods or services by tour operators or in relation to such of those supplies as may be determined by or under the order.

(2)

Without prejudice to the generality of subsection (1) above, an order under this section may make provision—

(a)

for two or more supplies of goods or services by a tour operator to be treated as a single supply of services;

(b)

for the value of that supply to be ascertained, in such manner as may be determined by or under the order, by reference to the difference between sums paid or payable to and sums paid or payable by the tour operator;

(c)

for account to be taken, in determining the VAT chargeable on that supply, of the different rates of VAT that would have been applicable apart from this section;

(d)

excluding any person from the application of section 43;

(e)

as to the time when a supply is to be treated as taking place.

(3)

In this section “tour operator” includes a travel agent acting as principal and any other person providing for the benefit of travellers services of any kind commonly provided by tour operators or travel agents.

…

14.

The relevant order made by the Treasury under the power in section 53(1) is the TOMS Order. The relevant provisions of the TOMS Order for the purposes of this appeal are Articles 2 and 3, which define the scope of the Order. As amended, Articles 2 and 3 of the TOMS Order are as follows:

This Order shall apply to any supply of goods or services by a tour operator where the supply is for the benefit of travellers.

(1) Subject to paragraphs (2) and (4) of this article, a “designated travel service” is a supply of goods or services–

(a)

acquired for the purposes of his business; and

(b)

supplied for the benefit of a traveller without material alteration or further processing;

by a tour operator who has a business establishment, or some other fixed establishment, in the United Kingdom.

(2)

The supply of one or more designated travel services, as part of a single transaction, shall be treated as a single supply of services.

(4)

The supply of goods and services of such description as the Commissioners of Customs and Excise may specify shall be deemed not to be a designated travel service.

15.

As the FTT identified (FTT [11]), it is necessary to construe the UK legislation so far as possible in conformity with the provisions of the PVD. The FTT concluded that it was possible to interpret the TOMS Order in a way that is consistent with Articles 306 to 310 of the PVD as interpreted and applied in the case law of the Court of Justice of European Union (“CJEU”) (Footnote: ²).

16.

The FTT identified two possible areas of concern.

(1)

The first was that, on its terms, Article 3(1)(b) of the TOMS Order requires that goods or services acquired for the purposes of the tour operator's business must be supplied to the traveller without material alteration or further processing whereas Article 306.1 PVD merely requires that the supplies of goods or services provided by other taxable persons should be used to provide travel facilities. The FTT addressed this issue at FTT [73] in the following terms:

73.

In so far as possible, I must interpret the TOMS Order in a way that is consistent with the provisions of the PVD as interpreted and applied in the case law of the ECJ and CJEU. It seems to me that section 53 VATA and the TOMS Order are consistent (or can be interpreted conformably) with Articles 306 to 310 PVD save possibly in one respect. That is the requirement in Article 3(1)(b) of the TOMS Order that goods or services acquired for the purposes of the tour operator's business must be supplied to the traveller without material alteration or further processing. Article 306 PVD merely requires that the supplies of goods or services provided by other taxable persons should be used to provide travel facilities. There is no further requirement that the goods and services should be used in their original state. However, in Madgett and Baldwin at [35] and in Kozac at [21] and [26], the ECJ held that the special EU scheme only applies to services bought in from third parties. It follows that in-house supplies are not within the special EU scheme. It seems to me that if the requirement that goods and services acquired from third parties should not be materially altered or processed means that they must not be so changed as to become in-house supplies then Article 3(1)(b) of the TOMS Order can be interpreted conformably with Article 306 PVD.

(2)

The second was that Article 306 PVD refers to tour operators acquiring goods and services from “taxable persons”, but the TOMS Order does not contain any reference to taxable persons. The FTT regarded this point as merely a difference in terminology, and not a substantive difference (FTT [74]).

17.

It was no part of either party’s case before us that the provisions of section 53 VATA and the TOMS Order cannot be interpreted in a way that is consistent with Articles 306 to 310 of the PVD. In any event, as before the FTT, there was no dispute between the parties that the drivers were taxable persons in the sense used in Article 9 PVD. However, one of the issues before us concerned the correct interpretation and application of the Article 3(1)(b) of the TOMS Order so as to comply with such a conforming interpretation (i.e. the issue to which we refer at [16(1)] above). We return to that issue later in this decision.

18.

We were also referred by the parties to various paragraphs in HMRC VAT Notice 709/5 including:

(1)

paragraph 2.9 of the Notice, which includes “passenger transport” amongst the list of supplies that are “always Margin Scheme supplies”.

(2)

paragraphs 7.11, 7.12 and 7.14 of the Notice, which deal with the provision of conference and organized shoots and specify that the supply of passenger transport as part of those supplies will remain a Margin Scheme supply.