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Understanding the Tour Operators Margin Scheme

Tour operator at deskThe Tour Operators Margin Scheme (TOMS) is used to calculate how much VAT travel businesses in the UK need to pay on certain holiday sales. Like many other EU-wide regulations, the future of the scheme is uncertain after Brexit. Just last month, chief executive of the European Tourism association (Etoa), Tom Jenkins, spoke to the EU parliament’s committee on transport and tourism, calling for TOMS to continue after the UK leaves the EU. As we wait to see the outcome of Brexit negotiations and whether the status quo will be kept, now’s your chance to read up on who the Tour Operators Margin Scheme benefits and how it operates today.

What is the Tours Operators Margin Scheme?

The Tour Operators Margin Scheme was introduced to provide uniformity across the EU within the travel sector. It’s a compulsory VAT measure affecting suppliers who buy and resell travel services. So if an establishment in the UK buys travel services from any EU member state and sells them to individuals in the UK, the company needs to pay UK tax on the margin but does not need to register for VAT in the foreign country.

For example, when a London-based tour operator puts together a holiday package for UK residents to go to Ibiza, let’s say, the company buys accommodation from a Spanish resort, flights from a foreign airline provider, maybe even includes a car hire option purchased from a local provider. Although the business is selling services in Spain, which would normally require registering in Spain for VAT, under TOMs, the tour operator can charge VAT in the UK on the margin made (the difference between selling price and cost of the travel service). The example is for a package, but it also applies to the sale of a single service (i.e. just the hotel in Ibiza, for example).

Calculating TOMS VAT

TOMS requires an extensive year-end calculation. This can get complicated since it’s different than how you would go about calculating standard output VAT. What makes matters even trickier is that at the end of the year you’ll be dealing with sales made both within and outside of TOMS. The circumstances of your business may also cause variations in TOMS calculations, so it’s important to check what applies to you specifically. Moreover, TOMS is not applicable to wholesale sales and in a number of other cases, meaning that you’ll need to review each case carefully.

Calculate TOMS VAT with Tax Agility

Working with accountants for the travel industry ensures that tour operators get their TOMS calculation right the first time. As accountants for travel and leisure companies, Tax Agility can help SMEs wrap their head around their tax implications. Our specialist accountants are here to discuss how TOMs applies to your business and we can help you plan effectively for the future.

Find out more about why we are the perfect accountants for the travel and leisure sector by calling us today on 020 8108 0090.