This article refers to the elements provided by the UK Tax Administration but gives a good understanding of the TOMs topic in the EU.
Comment: Any reference to a notice or technical element in this article refers to the EU and UK legislation. Even if UK is mentioned in this article as an illustration for TOMS, the UK is adjusting the TOMS rules due to Brexit. Please, contact your advisor to know more.
👉 1. What is the Tour Operators’ Margin Scheme?
It is a special scheme for businesses that buy-in and re-sell travel, accommodation and certain other services (see paragraph 9) as a principal or undisclosed agent (that is, acting in your own name). In the UK this scheme is known by the abbreviated term ‘the TOMS’.
The TOMS is a simplification measure. In many cases it enables VAT to be accounted for on travel supplies without businesses having to register and account for tax in each Member State where the services and goods are enjoyed.
👉 2. Does the TOMS only apply to ‘traditional’ tour operators?
No, it covers anyone who is making the type of supplies detailed in paragraph 1, even if this is not your main business activity, or you do not view yourself as a ‘traditional’ tour operator. For example:
- a hotelier who buys in coach passenger transport to collect its guests at the start and end of their stay
- a coach operator who buys in hotel accommodation in order to put together a package
- a company that arranges conferences, including providing hotel accommodation for delegates
👉3. Must I use the TOMS?
It depends on what you do. If you are an undisclosed agent (that is, acting in your own name) or a principal (see Notice 709/6 Travel agents and tour operators) in making:
- margin scheme supplies (see paragraph 7), or
- other types of supply (for example an in-house supply) packaged/supplied with margin scheme supplies (see paragraphs 9 and 11)
then you are acting as a tour operator and must account for VAT using the TOMS – see also paragraph 4.
👉 4. Does the TOMS cover all my supplies?
Not necessarily, the TOMS does not apply to:
- supplies you have arranged as a disclosed agent/intermediary and your commission is readily identifiable (see paragraphs 14)
- in-house or agency supplies you make which are not packaged/supplied with margin scheme supplies (see paragraphs 12 and 13)
- supplies you make to business customers for subsequent resale by them (that is, wholesale supplies), or
- supplies that are incidental to your other supplies
If you are unsure as to whether or not you must use the TOMS, you should contact your local VAT Business Advice Centre for advice. To help us decide, we may ask you to write in with copies of your contracts, brochures, booking terms & conditions, and other sales literature.
👉 5. Is the TOMS affected by where the supplies are enjoyed?
No, the TOMS applies to travel services that are enjoyed:
- within the UK
- within the EC (that is, other than the UK)
- outside the EC
👉 6. How does the TOMS work?
If you are registered for VAT, you must normally account for tax on the full selling price of your supplies, but you can reclaim the VAT charged on purchases (subject to the normal rules).
Under the TOMS, you cannot reclaim any UK or EC VAT charged on the travel services and goods you buy-in and re-supply – the tax on such goods or services is accounted for in the relevant Member State by the providers of those services (hotels, airlines and so on).
However, as a tour operator based in the UK, you only account for VAT on the margin you make on your margin scheme supplies (see paragraph 7), that is, the difference between the amount you receive from your customer (including any amounts paid on behalf of your customer by third parties) and the amount you pay your suppliers.
Section 5 explains how to work out your output tax using the TOMS and the value of your outputs by using the appropriate calculation in sections 8, 9, 10, 11 and 12.
You can still reclaim, subject to the normal rules, VAT on overheads outside the TOMS.
👉 7. What is a margin scheme supply?
A margin scheme supply is defined in law as a ‘designated travel service’.
This means it is a supply of goods or services which is:
- bought in from another person and re-supplied without material alteration or further processing, and
- supplied by a tour operator from an establishment in the UK, for the direct benefit of a traveller – see paragraph 8
See also paragraphs 9, 10 and 211.
👉 8. What is meant by the term ‘traveller’?
A person, including a business or local authority, who receives a supply of a designated travel service, other than for the purpose of re-supply.
👉 9. What type of supplies fall within the TOMS?
The following are always margin scheme supplies:
- passenger transport
- hire of a means of transport
- trips or excursions
- services of tour guides
- use of special lounges at airports
See also paragraphs 10, 11 and 12.
👉 10. Can any other supplies become margin scheme supplies?
Yes, supplies such as catering, admission tickets and sports facilities fall within this category, if they are:
- bought in and sold on without material alteration, for the direct benefit of a traveller, and
- provided as part of a package with one or more of the supplies listed in paragraph 9
👉 11. What is a margin scheme package?
It is a single transaction, which may include one or more margin scheme supplies, or it may also include margin scheme supplies sold together with an in-house supply and/or an agency supply.
👉 12. What about supplies of services similar to those at paragraph 9 that are not bought-in?
These are described as ‘in-house’ supplies and are defined as:
- a supply made from your own resources, or
- resulting from purchases that you have bought in but materially altered or further processed, so that what you eventually supply is different from what you purchased.
👉 13. How do I account for VAT on in-house supplies?
If supplied on their own (that is, not with margin scheme supplies) in-house supplies are taxed under the normal VAT rules, that is, they are not subject to the TOMS.
You can find examples of in-house supplies in section 7 of this notice.
If you make a mixture of in-house supplies and bought-in margin scheme supplies, they must all be accounted for using the TOMS, the in-house supplies will need to be quantified so they can be accounted for under the normal rules. There are two different TOMS methods. The cost based method and the market value method. These are fully explained in sections 5, 8 and 9 of this notice.
To determine which method is appropriate for your business to use you will need to consider the following,
Note: if you can calculate a market value for some in-house supplies and not others you may have to use a mixture of the apportionment methods.
Package 1: includes an in-house supply A for which a market value can be established - the market value method will be used for the in-house supply.
Package 2: includes an in-house supply B for which a market value cannot be established - the cost-based method will be used for the in-house supply.
Package 3: includes both the in-house supplies A and B - the market value method must be used to extract A from the package and the cost-based method used for remaining parts of the package.
However, if the structure of the package is such that the cost-based method is an accurate reflection of the package, then the figures for A can be included in the cost-based calculation and the market value method ignored.
👉 14. Must agency supplies be included in the TOMS?
If you act as a disclosed agent in the making of margin scheme supplies (that is, you name the provider of the margin scheme supplies), you are not yourself making margin scheme supplies and so you must normally account for any VAT on your commission under the normal rules (that is, not using the TOMS) - see Notice 709/6 Travel Agents and Tour Operators.
However, if you…Then you…use the TOMS because you make margin scheme supplies in your own name, and also receive variable commission (or commission which is otherwise not readily identifiable) as a disclosed agent. must include your agency income and directly related costs in your TOMS calculations.
👉 15 Does it matter where my business is established?
If your supplies are made from an establishment in another Member State, you may have to register and account for tax under that country’s equivalent of the TOMS.