The Tour Operators Margin Scheme (TOMS) is a VAT scheme in the UK designed specifically for businesses that buy in and re-sell travel, accommodation, and certain other services as part of travel packages. This scheme simplifies VAT accounting by only taxing the margin made on sales, rather than each individual component of a package, making it highly relevant to travel operators and agencies.

Who Does TOMS Apply To?

TOMS applies to travel businesses that:

• Buy and re-sell services like accommodation or transport that are sourced from suppliers and resold without significant alteration.
• Sell these services to customers within the UK or EU.

Instead of accounting for VAT on each transaction (e.g., for hotel rooms or flights individually), businesses under TOMS only account for VAT on their profit margin — the difference between the cost of the package and its selling price.

2024 Updates to the TOMS Scheme

The TOMS scheme has seen several changes following the UK's exit from the EU and new VAT regulations post-Brexit. Key updates include:

1. Non-EU Supplies: After Brexit, TOMS no longer applies to travel services enjoyed outside the EU, such as trips to the US or Australia. These sales are zero-rated, meaning they are not subject to VAT.

2. VAT on EU Sales: For travel services sold for use in the EU, VAT is still charged, but businesses now face different obligations depending on whether they deal with private individuals or business clients in the EU.

3. Reporting Requirements: UK travel operators must maintain detailed records of margin calculations and ensure that VAT is only paid on the profit margin from EU-related sales.

How TOMS Works: A Simple Example

Imagine a UK travel company, HolidayTime Ltd, sells a holiday package to Spain for £1,200 per person. The cost of the flight and hotel to HolidayTime Ltd is £1,000. Under the TOMS scheme, VAT is not applied to the whole package price but only to the margin made on the sale.

Calculation:

• Selling price: £1,200
• Cost price: £1,000
• Margin: £200

The VAT will only be charged on this £200 margin, rather than the full £1,200. This simplifies VAT accounting and ensures that VAT is only paid on the profit made, rather than the total price of the package.

For a standard-rated supply, VAT on this margin at 20% would be £40.

Costs and Expenses for Property Owners Under TOMS

Implications for Travel Businesses

With the 2024 updates, businesses need to:

• Keep clear records of EU versus non-EU sales.
• Understand the VAT rules for EU services post-Brexit.
• Ensure compliance with TOMS by accurately reporting margins and VAT.

For businesses operating internationally, these changes are significant, and failing to comply could lead to penalties or overpayment of VAT. Proper advice and planning are essential to maximize tax efficiency.

For more detailed advice on how the TOMS scheme impacts your business, StratFinance Solutions is here to help. We offer tailored VAT planning and compliance solutions to keep your business operating smoothly. Contact us today to learn more!