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The UK VAT Tour Operators Margin Scheme (TOMS)

What is a TOMS Scheme for VAT?

The UK VAT Tour Operators Margin Scheme (TOMS) is a special accounting scheme for value-added tax (VAT) that is used by tour operators. It allows tour operators to account for VAT on the margin they make on the package holidays they sell, rather than on the full value of the package. The TOMS scheme is intended to simplify VAT accounting for tour operators and reduce the administrative burden of calculating and paying VAT on the full value of each package holiday. It is an optional scheme that tour operators can choose to use if they meet certain eligibility criteria.

Under the TOMS scheme, tour operators must charge VAT on their margin, which is the difference between the cost of the package holiday to the tour operator and the price at which it is sold to the customer. This means that VAT is only charged on the profit made by the tour operator, rather than on the full value of the package holiday.

The TOMS scheme is only available for package holidays, which are defined as a combination of two or more of the following elements:

  • Transport

  • Accommodation

  • Other tourist services (e.g. excursions, car hire)

The TOMS scheme cannot be used for the sale of standalone travel services (such as the sale of airline tickets or hotel rooms).

How to register for TOMS Scheme?

To apply for the UK VAT Tour Operators Margin Scheme (TOMS), tour operators must first ensure that they are eligible to use the scheme. To be eligible, tour operators must:

  • Be registered for VAT in the UK

  • Sell package holidays that include at least two of the following elements: transport, accommodation, and other tourist services

  • Be responsible for arranging and paying for the package holiday on behalf of the customer

If a tour operator meets these eligibility criteria, they can apply to use the TOMS scheme by contacting their local VAT office. The tour operator will need to complete a TOMS1 application form and provide supporting documentation, such as copies of invoices and contracts related to the package holidays they sell.

Once the application has been approved, the tour operator will be able to use the TOMS scheme for accounting for VAT on the package holidays they sell. They will need to keep detailed records of their sales and costs and complete VAT returns on a regular basis, showing the VAT due on the margin they make on each package holiday.

It is important to note that the TOMS scheme is an optional scheme, and tour operators can choose to opt out at any time if they no longer meet the eligibility criteria or if they prefer to account for VAT on the full value of their package holidays.

Example of TOMS Scheme in operation.

A tour operator arranges a package holiday to France for a customer, which includes flights from London to Paris, accommodation at a hotel in Paris, and a sightseeing tour of the city. The total cost of the package holiday to the tour operator is £500. The tour operator sells the package holiday to the customer for £700.

Under the TOMS scheme, the tour operator must charge VAT on the margin they make on the package holiday, which is calculated as the selling price minus the cost price. In this case, the margin is £700 – £500 = £200.

The tour operator must therefore charge VAT on the margin of £200 at the applicable VAT rate (which is currently 20% in the UK). This means that the tour operator must charge VAT of £200 x 20% = £40 on the package holiday.

The tour operator must include the VAT charge of £40 in the price of the package holiday and show it separately on the invoice to the customer. The customer pays the total price of £700 + £40 VAT = £740 for the package holiday.

The tour operator must then pay the VAT of £40 to HMRC and report the sale and VAT charged on their VAT return. The tour operator will also need to keep detailed records of the cost of the package holiday and the margin they made on the sale, in case they are required to provide this information to HMRC.

TOMS Scheme can be difficult to understand. Contact us at Finanche for help with setting up the scheme and if you require help with the VAT returns.