The Tour Operators Margin Scheme (TOMS)
What is the TOMS regime?
TOMS is a mandatory VAT accounting measure that applies to any supplier who buys in and resells designated travel services in their capacity as either a principal or undisclosed agent without materially altering those services.
It is applied to sales to consumers only and does not apply to wholesale B2B sales.
Designated travel services will include the following:
- passenger transport,
- trips or excursions,
- hire of a means of transport and the use of airport lounges or tour guides.
It can apply to the sale of a single designated travel service as well as a package.
Some other types of supply such as theatre, attractions and tickets to sporting events and catering will be in the TOMS if they are sold with a designated travel service.
It is important to note that TOMS also applies to any business or organisation that sells designated travel services and not just travel agents and tour operators.
The consequence of being within TOMS
VAT is payable where the supplier is established rather than where the service is consumed. As such, a UK supplier will account for UK VAT. This is a simplification because it would mean that under the normal EU VAT rules a supplier might have a liability to register and account for VAT in each EU member state where any travel service is consumed.
VAT is due on the difference between the sale price to the consumer and the cost of the relevant travel service. Hence the use of the word ‘margin’ in the name of the scheme.
The standard rate of VAT is due on services consumed in the EU and, where the service is consumed outside of the EU, it is zero-rated.
If a supplier is based outside of the EU then it will not be liable to pay any VAT. This remains the case even if the customer isbased in the EU and the service itself is consumed in the EU.
What supplies are outside of the TOMS regime?
As previously stated above, the TOMS regime does not apply to wholesale sales. Instead VAT will be accounted for under the usual VAT ‘place of supply’ rules.
A fully disclosed agentwho is selling services on behalf of another named travel service supplier will also not be liable under the TOMS regime. The supply by the principal travel service supplier may well be. However, the disclosed agent will instead be liable under the normal VAT rules.
So called ‘in-house supplies’are also outside of TOMS. This would include the supply of hotel accommodation by a hotel-owner and the supply of a flight by an airline. This is subject to their being no material alteration.
Where a supplier sells a single price package and it includes a supply both under TOMS and an in-house supply then special rules apply to the TOMS calculation.