Talk to a specialist

Tour Operator Margin Scheme (TOMS)

What is the Tour Operator Margin Scheme?

The Tour Operator Margin Scheme (TOMS) is a unique VAT accounting method tailored to businesses that buy and resell travel, accommodation and other services. This scheme simplifies VAT accounting by allowing UK businesses to pay VAT on their margin rather than the full selling price, ensuring that VAT is not charged twice on the same services.

The TOMS VAT scheme can be particularly beneficial for travel businesses, as it streamlines the accounting process and reduces the administrative burden. In essence, it is a way in which businesses that buy and re-sell travel, accommodation and other services can account for VAT without losing their profit.

Nevertheless, many businesses in the travel industry—whether as a principal or agent—use TOMS to manage VAT efficiently. However, understanding the specifics of TOMS or the dichotomy between principal vs agent can be confusing. In this guide, I will break down key aspects of TOMS, so you can ensure your business is compliant and maximising its VAT opportunities.

So, If you are a business owner in the travel industry who agonises over TOMS, you have come to the right place, because in this article I will try to shed some light on this rather opaque topic. My goal is to give you the assurance that you are heard, understood and helped to properly deal with this scheme.

Principal vs Agent in the Tour Operator Margin Scheme

In the Principal vs Agent distinction, the main difference lies in who is responsible for the sale and transaction. If you’re acting as a principal, you are directly selling the service or product, purchasing it from a supplier and reselling it to the customer. As an agent, however, you are merely facilitating the sale and not taking on the ownership of the goods or services. This distinction plays a key role in the VAT treatment under TOMS, and you may need to adjust your TOMS VAT return accordingly.

For example, as a principal, you’ll apply TOMS to the services you resell, calculating VAT on the margin between your buying and selling prices. If you are an agent, you may only be required to apply VAT to your commission. Understanding the Principal vs Agent distinction is crucial in ensuring that you follow the right VAT rules for travel agents, which will influence your overall VAT calculation.

Agent vs Principal: Understanding the Key Differences

The Agent vs Principal distinction is fundamental to VAT under TOMS. When you’re a principal, you are responsible for the entire package, while as an agent, you are selling on behalf of the actual service provider. This affects whether you account for VAT on the full sale or just on the margin. Understanding this distinction can help businesses better navigate the VAT travel agents complexities that they must account for when reselling services.

TOMS is more straightforward when you are acting as a principal because VAT is only due on the margin. However, as an agent, VAT is charged only on your commission, and in some cases, this can be more complex to calculate. This is why knowing the VAT TOMS implications for your business model is crucial.

Disclosed Agent: What Does It Mean for VAT?

A Disclosed Agent acts on behalf of a principal (like a tour operator or hotelier), and the customer is aware that the agent is not the actual seller of the service. In such cases, the VAT treatment is different compared to an undisclosed agent, as the agent’s commission is usually clearly outlined. If you are a disclosed agent, your VAT obligations will depend on the specific terms of your contract with the principal. When dealing with VAT for travel agents, ensuring that you follow the correct rules for your specific role will save you from potential errors in your TOMS VAT return.

Undisclosed Agent: The VAT Implications

An Undisclosed Agent sells the travel services in their own name, without revealing the actual principal to the customer. In these situations, the agent assumes more risk and responsibility, and the VAT calculation under TOMS is based on the margin between the total selling price and the purchase price. Being an undisclosed agent typically involves more complex VAT accounting, as the full details of the transaction are not shared with the consumer. If you’re an undisclosed agent, understanding VAT TOMS complexities is essential to ensure that VAT is properly accounted for, especially regarding the VAT travel agents unique situation.

The Tour Operator Margin Scheme and VAT

The Tour Operator Margin Scheme (TOMS) simplifies VAT accounting for businesses that package and resell travel services. When you sell packages, such as flights, accommodation and tours, under TOMS, you pay VAT only on the difference (margin) between your buying and selling price. This avoids the need to pay VAT on each individual element of the package. By using TOMS VAT, travel businesses can reduce the complexity of calculating VAT on each individual service sold.

It’s important to note that TOMS doesn’t apply to business-to-business (B2B) sales, and the VAT is applicable only on consumer sales. For VAT purposes, Margin Scheme supplies are considered one supply, and this makes TOMS an attractive option for businesses dealing with packaged travel products.

How TOMS Works for Different Business Models

Despite the “tour operator” in the title, this scheme does not apply necessarily only to businesses that consider themselves tour operators. Rather it applies to all businesses that fall under the criteria detailed below.

As mentioned earlier, the application of TOMS is not limited to just tour operators but extends to any business that buys in and resells travel services.

Whether you’re a principal or an agent, you need to determine whether your supply qualifies for TOMS. For example, a hotel that buys transport to provide a complete holiday package or a coach operator reselling hotel accommodation would also fall under TOMS.

Businesses that offer services such as accommodation, transport or guided tours can take advantage of TOMS to simplify VAT calculations. This can include businesses that provide services such as conference organisation or event planning. If you are unsure whether your business qualifies for VAT TOMS treatment, it’s essential to seek professional advice to ensure compliance with VAT rules for travel agents.

This applies even though these services are not the main activities of the business, for example:

  • hotelier who buys in coach passenger transport to collect its guests at the start and end of their stay
  • coach operator who buys in hotel accommodation in order to put together a package
  • company that arranges conferences, including providing hotel accommodation for delegates

 

As such, a business must use TOMS when it acts as an undisclosed agent (that is, an agent acting in his own name) or a principal (i.e. travel agent or tour operator) in making either:

  • Margin Scheme supplies, or
  • other types of supply (for example an in-house supply) packaged or supplied with Margin Scheme supplies

What is the Margin Scheme ?

Admitedly, Margin Scheme may sound complicated. It actually means that HMRC considers that certain services are always Margin Scheme supplies, for example:

  • accommodation
  • passenger transport
  • hire of a means of transport
  • trips or excursions
  • services of tour guides
  • use of special lounges at airports

 

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
  • provided as part of a package with one or more of the supplies listed in the list above

 

It is important to note that TOMS does not apply to:

  • supplies you have arranged as a disclosed agent or intermediary and your commission is readily identifiable
  • in-house or agency supplies you make which are not packaged or supplied with Margin Scheme supplies
  • supplies you make to business customers for subsequent resale by them (that is, wholesale supplies)
  • supplies that are incidental to your other supplies

 

Does TOMS apply only to EU travel ?

The Tour Operator Margin Scheme (TOMS) is indeed primarily associated with European Union (EU) travel, but its scope extends beyond just EU travel. Initially, the purpose of TOMS was to simplify VAT accounting for tour operators in EU member states. Nevertheless, similar schemes or regulations may exist in other jurisdictions outside the EU.

Even though in countries outside the EU there might be analogous systems or regulations governing the taxation of travel services,  these would have different names and specific requirements tailored to the respective jurisdiction’s tax laws.

The good news is that in many cases TOMS 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.

The main purpose that TOMS was introduced in the EU was to help businesses with respect to their VAT obligation. As such, they do not have to pay VAT separately in each different EU member state in which they operate their travel or tour services. UK retained this special VAT scheme after Brexit, such that from 1 JAN 2021 UK businesses that qualify for TOMS can continue to use it.

How LAS Accounting Can Help with TOMS

Understanding and applying the Tour Operator Margin Scheme can be tricky, but with the right support, it becomes manageable. At LAS Accounting, we specialise in helping businesses in the travel sector navigate TOMS with ease. Whether you are a disclosed agent or a principal, we can assist you with VAT compliance, helping to ensure that your business is fully compliant with all necessary tax regulations, including VAT on travel agents commission.

If you are struggling with TOMS, or if you’re unsure about whether it applies to your business, please get in touch. Our expert team can help you streamline your VAT accounting, giving you peace of mind to focus on running your business. We specialise in managing TOMS VAT returns and ensuring that businesses maximise the benefits of the VAT TOMS scheme.

Need help with TOMS VAT?

LAS Accounting specialises in TOMS VAT for UK travel businesses.