TOMS: Tour Operators Margin Scheme

TOMS” or Tour Operators Margin Scheme is a special scheme for Travel Agents to account for VAT. However, it’s not just Travel Agents that need to understand how it works.

The scheme puts holidays outside the EU at a VAT advantage to those within the EU, and is notoriously difficult for businesses to operate, as it results in lengthy and complex calculations.

VAT in the event of a hard Brexit

We know that if the UK does leave with an EU withdrawal agreement in place (the so-called ‘soft Brexit’), then TOMS will continue in its current form during the transitional period. What we didn’t previously know was how tour operators would be expected to handle their VAT in the event of leaving the UK without a deal, or a ‘hard Brexit‘. HMRC has been engaging with the travel industry and will continue to work with businesses to minimise any impact.

At the beginning of this year, the Treasury issued a new Statutory Instrument (SI) which will be enacted in the event of a no deal hard Brexit. This SI says that tour operators will continue to pay VAT on the margin of UK holidays but that the margin will be zero rated for all holidays which take place outside the UK.

UK tour operators are not currently required to register in any other EU country because TOMS covers their activities in the whole of the EU. Non-EU tour operators e.g. those based in the US, Dubai or Asia, are not required to register either. This has given non-EU tour operators supplying holidays into the EU, a financial advantage over EU tour operators.

Who else does TOMS apply to?

In addition to Travel Agents, the “TOMS” also applies to any businesses that buy-in and then sell-on any of these supplies:

  • Accommodation
  • Passenger transport
  • Hire of means of transport
  • Use of airport lounges
  • Trips or excursions
  • Services of tours guides

If “TOMS” applies to your business, you will only have to account for output VAT on the margin you make on your sales; that’s the difference between the cost of the travel services you buy in and your selling price. It also means you will not be able to recover the input VAT you incur on your margin scheme costs.

Some of your sales and costs may be outside of the TOMS calculation, which can complicate the process. Our specialist advisers can guide you through the complexities of the scheme.

It is currently unclear how a ‘no-deal Brexit’ will impact the Tour Operators Margin Scheme. Further detail is expected in due course.

If you have any concerns on the points raised please get in touch and speak to a member of our tax team.