Tour Operators’ Margin Scheme (TOMS)
The TOMS is a special scheme of VAT accounting and a simplification measure which is used by those who supply designated travel services as a principal or undisclosed agent, with VAT being accounted for where the supplier is established in the EU rather than in all member states where they provide travel services.
Standard rate VAT is only due on the margin made on services which are enjoyed in the EU with no VAT being due on the margin made on services which are enjoyed outside the EU. A TOMS supplier always makes single supplies even for package deals. Broadly, the margin is the difference between the selling price and the VAT inclusive costs putting together the package. TOMS VAT is treated as included in the margin, so the supplier applies VAT at 20% to the margin to work out the TOMS output tax liability.
VAT invoices are not issued to customers for supplies which are accounted for under the TOMS.
No VAT can be reclaimed on scheme purchases although input tax can still be reclaimed on overheads and non-scheme purchases, subject to the normal rules.
TOMS only applies to travel services which are supplied direct to the traveller. Supplies to business customers for onward sale will retain their usual VAT liability outside of the TOMS.
How other businesses can be caught out by TOMS
Any type of business that supplies travel services even if it is not part of the main business activity may be liable for TOMS.
For example a company that arranges a client conference that also arranges accommodation for the client. If the following criteria are met, the company will be liable for TOMS:
- The accommodation is bought and resold at a mark up
- The supply has been made to the end user (in this case the employees of the client)
- The accommodation has been bought is its own name.
In this case, the company should be accounting for TOMS VAT on its mark-up.