This note highlights the key points of the Tour Operators’ Margin Scheme (TOMS); what the scheme is, the scope of the scheme, how it works, the VAT position and other points requiring further consideration.
What is TOMS?
TOMS is a special scheme for businesses that buy in and resell margin scheme supplies in and outside of the UK such as travel, accommodation, and certain other services. It is a simplification measure allowing a bundle of supplies made to the same person to be treated as a single supply.
Which entities fall within the scope of TOMS?
TOMS applies to entities buying in and reselling travel supplies for the direct benefit of a traveller, irrespective of whether the traveller uses the supplies for business or private purposes.
The measure applies to traditional tour operators and entities providing travel services as an ancillary part of their business e.g. a company organising conferences with hotel accommodation for delegates.
How does TOMS work?
Under TOMS:
- VAT is not calculated on the full selling price. Instead, VAT is calculated on the difference between the amount received from the customer including any amounts paid on their behalf by third parties and the amount paid to suppliers i.e. the margin is the value of the supply.
- VAT invoices cannot be issued for such supplies where the VAT due is not usually known at the time the supply is made. The VAT is determined when the end of year calculation is undertaken. The invoice for a TOMS supply sold to a business for use in its business has to include a statement such as “This is a Tour Operators’ Margin Scheme supply” or “This supply falls under the Value Added Tax (Tour Operators) Order 1987”.
- VAT cannot be reclaimed on the margin scheme supplies bought in for resale.
- VAT on overheads falling outside of TOMS can be reclaimed subject to the normal VAT recovery rules.
- Special rules apply for establishing the place of supply, liability of the supply and time of supply of the transaction or package.
Margin scheme supplies falling within TOMS
A margin scheme supply is a designated travel service, which means a supply bought in and resupplied without material alteration or further processing, by a UK established tour operator for the direct benefit of a traveller.
A traveller is an entity, including a business or local authority, or individual, who receives a margin scheme supply which is not resupplied on. By concession tour operators may opt wholesale supplies supplies sold to a business for onward resale out of TOMS.
Examples of margin scheme supplies:
- Accommodation
- Passenger transport
- Hire of a means of transport
- Trips or excursions
- Services of tour guides
- Use of special lounges at airports
Other supplies which become margin scheme supplies:
- Other supplies purchased and resold without material alteration for the direct benefit of a traveller as part of a package with one or more of the above margin scheme supplies e.g. catering, admission tickets, sports facilities etc.
- In house supplies from own resources or supplies from purchases that have been bought in and materially altered or processed would not fall within TOMS if supplied on their own. However, if they are supplied with the margin scheme supplies detailed above, then they would fall within the scheme.
Where is the place of supply of margin scheme supplies?
The place of supply of the margin scheme service depends on where the entity is established. If the package is supplied by an entity established in the UK, whether the UK is their only establishment or one of many, then the place of supply is in the UK and subject to local legislation. If the package is supplied by an entity established outside of the UK, then the place of supply is outside of the UK and TOMS does not apply.
Normal place of supply rules applies for in house supplies whether or not those supplies are part of a package e.g. accommodation is supplied where it is situated, passenger transport is supplied where it takes place etc.
For packages with a place of supply in the UK, the VAT liability is standard rated for tours enjoyed in the UK and zero rated for tours enjoyed outside of the UK.
Other points requiring further consideration
TOMS can be a complex area, there are many aspects to consider including:
- The correct TOMS method to use for the calculations.
- Use of a fair and reasonable apportionment where journeys involve travel inside and outside the UK with stops e.g. Mileage based split or nights in/out of the UK based split.
- Time of supply e.g. if there is more than one payment.
For TOMS guidance or more details, please contact a member of the VAT team.
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