Tour Operator’s Margin Scheme (TOMS)
The Special Scheme for Travel Agents, also known as The Tour Operators’ Margin Scheme (‘TOMS’) is a special scheme for businesses that buy in and re-sell travel, accommodation and certain other services as principals or undisclosed agents. The key benefit of the scheme is that in many instances it enables VAT to be accounted for without businesses having to register in every EU Member State in which the services and goods are enjoyed.
The VAT due on sales made under TOMS will be accounted for on the profit margin i.e. the amount received from customers less the amount paid to suppliers. However, VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on general business overheads though, which are outside TOMS, can be reclaimed in the normal way.
Whilst this scheme was initially aimed at the traditional tour operators, the European Court of Justice has confirmed that anyone who makes ‘margin scheme supplies’ (as detailed below), can fall within the scope of TOMS, even if this is not their main business activity:
- Passenger transport
- Hire of means of transport
- Use of special lounges at airports
- Trips or excursions
- Services of tour guides
Event Organisers and Hosts
Accordance see a lot of issues created by the TOMS rules when companies, who are predominantly event organisers or hosts, start providing hotel accommodation or passenger transport services for delegates attending the event which is being organised.
A client may hold a conference, say in the UK, and block-book a hotel to provide accommodation for attendees during the conference. The hotel will invoice the client charging UK VAT at 20%. The client then recharges the hotel costs to the delegates as part of the overall charge for the conference, marking the cost up and charging UK VAT at 20%. The VAT due on this income and that charged by the hotel is included on their UK VAT return.
Unfortunately for the client they had unknowingly been supplying services that would fall within TOMS, because:
- They bought in and resold TOMS services i.e. hotel accommodation; and
- they have sold these on at a mark-up, in their own name and without material alteration; and
- They have sold these to the end user of the services.
Therefore, instead of the client recovering the hotel VAT costs and charging VAT to the attendees, they should have accounted for these services under TOMS. This means accounting for output tax on the profit margin and blocking the VAT hotel costs.
Accordance assisted the client by providing pro-active advice ahead of the next conference it was organising taking place and before any contracts were concluded. This involved reviewing the contractual position between the event host, the hotel and the delegate and advising on how they could restructure the position. In doing so, Accordance ensured the client was still able to provide the hotel offering to the delegate but set up in a way that meant its supply did not fall within TOMS.
This not only meant the client did not lose out on any sticking VAT, but also prevented them from having to undertake a TOMS calculation, which is a particularly complicated and time consuming mechanism to operate.