When it comes to property owners participating in the Tour Operators Margin Scheme (TOMS), various types of expenses play a role in determining the margin on which VAT is payable. Understanding these costs is crucial for accurate VAT accounting. Here’s a breakdown of typical expenses:

1. Property-Related Expenses

• Maintenance and Repair Costs: These include general upkeep, repair works, and regular maintenance tasks that ensure the property remains functional and habitable.
• Utility Bills: Costs for electricity, water, gas, and other utilities that are essential to the operation of the property.
• Insurance: Property insurance (including buildings and contents insurance) is a significant expense, ensuring coverage for risks like fire, flood, or theft.
• Property Management Fees: Charges paid to property management companies for managing day-to-day operations, dealing with tenants, and handling maintenance.
• Local Taxes: Such as Council Tax in the UK or local authority charges in certain jurisdictions.
• Legal and Accounting Fees: Expenses incurred for legal services and financial management, including preparing financial statements, handling tax affairs, and dealing with regulatory requirements.

2. Material Alteration

Material alterations refer to substantial changes or renovations made to the property that go beyond routine maintenance or repair. These alterations could include:

• Structural Changes: Examples include adding extensions, altering the layout of rooms, or major modifications to the building itself.
• Upgrading Systems: Installing new electrical wiring, plumbing systems, or HVAC units that significantly alter the property's overall condition or market value.
• Renovations: Rebuilding or refurbishing major parts of the property such as kitchens or bathrooms, which could impact the property's function or appearance.

Under TOMS, VAT is only chargeable on the margin, which includes costs related to property operations, but it excludes material alterations that are typically capital in nature.

Sonder Case Explained

Sonder cases refer to scenarios where certain transactions fall outside the typical scope of VAT under TOMS. A Sonder case could involve a travel or accommodation service that includes both taxable and non-taxable elements, such as:

• Exempt Services: Accommodation services provided in educational or charitable establishments may be partially or fully VAT-exempt.
• Dual Services: A package that includes both zero-rated elements (such as flights outside the EU) and VAT-rated services (like hotel accommodation within the UK or EU) requires careful margin calculations.

Example: Imagine a property owner offers a holiday package that includes a stay in a villa located in Spain and a flight from the UK. If the flight is zero-rated but the accommodation is VAT-rated, the property owner must calculate VAT on the accommodation portion of the margin.

Understanding the UK TOMS Scheme: Latest Updates for 2024