Complying with TOMS and Travel Industry VAT

Female Tour Operator with passports. TOMS and Travel Industry VAT

Complying with TOMS and Travel Industry VAT

The last few years have been challenging for the travel and tourism industry. To exacerbate matters, a UK government VAT holiday for travel and tourism businesses has ended as the industry emerges from the pandemic.

Across the travel industry, the VAT (Value Added Tax) rules are constantly changing and complex. For business owners, your VAT position is crucial for profitability. However, with constant changes to travel rules post-pandemic and BREXIT, it can be challenging to track and ensure VAT efficiency.

One area of concern and continuing development is the EU Tour Operators Margin Scheme (TOMS) which has become more complicated since the UK departed from the EU.

What is TOMS? How is it changing? What do travel and tourism operators need to know?

Let’s explore this topic further.

What is TOMS?

Introducing the Tour Operators Margin Scheme was to create a level-playing field for value-added taxes across the EU.

TOMS is a compulsory VAT accounting scheme for businesses that buy in and resell travel, accommodation, and certain designated services, such as trips and excursions or using airport lounges, as principals or undisclosed agents.

Originally designed to eliminate double taxation, so that if an operator in the UK buys designated travels services from any EU member state and then resells them in the UK, the company will need to pay UK VAT on the profit margin but will not be required to register for VAT in the foreign country.

It applies to the sale of a single travel service and packages. TOMS is a simplification measure that treats a bundle of supplies made to the same person as a single supply made in the UK (United Kingdom).

You pay UK standard rate VAT on the margin between the package total cost and the sales price to the end customer for travel inside the UK. The margin is zero-rated for travel outside of the UK.

Who must use TOMS?

It is not just the stereotypical travel operations that are eligible for TOMS. It can apply to any business that supplies the below, even if this is not your primary business activity.

  • Hoteliers who buy in coach passenger transport to collect guests at the start and end of their holidays.
  • Coach operators who include hotel accommodation in holiday packages
  • Companies that arrange conferences with hotel stays for delegates.
  • School trips
  • Clubs and associations
  • Charities

TOMS does not apply to:

  • Supplies arranged by you as a disclosed agent or intermediary, and your commission is readily identifiable.
  • In-house or agency supplies you make that are not packaged or supplies with Margin Scheme supplies.
  • Supplies you make to business customers for them to later resell
  • Incidental supplies to other supplies

TOMS after Brexit

While the UK was a member of the EU, the same TOMS rules applied across the EU, including the UK.

Despite the UK’s withdrawal from the EU, the UK decided to remain a part of the scheme but has made operation changes.

The Tour Operators Margin Scheme (VAT Notice 709/5) has been updated and requires the payment of VAT only on UK holidays and other UK travel, compared to the whole EU at present, but otherwise mirrors the existing arrangements in all respects. The margin on all forms of travel enjoyed outside the UK is zero-rated. The UK VAT treatment of travel services falling outside TOMS is also unchanged.

However, the European Commission has prioritised examining how TOMS operates in practice and may regard the UK as having an unfair advantage. Currently, the commission notes that member state governments have the right to implement their requirements regarding VAT registration and non-EU operators.

A TOMS review due to take place and eagerly awaited by many EU members, such as Germany, is now delayed until 2024. The review was thought to be ongoing, with the initial findings and proposals published by the end of 2023 but is on hold.

Croatia, a hotspot destination for British holidaymakers, already has laws to clarify third-country supplier status. Since 2021, UK tour operators must register for VAT in Croatia.

Be prepared for further changes!

Other countries within the EU will likely follow suit and look at their rules regarding VAT and third-country suppliers. UK travel and tourism businesses need to be confident that they understand the rules as they currently are and stay alert to any compliance changes over the coming years.

A European Commission study took place in 2022 that explored ways to modernise and harmonise the rules to create a level playing field. Assessments carried out so far also highlight that the VAT rules are not fit for the digital travel market.

The importance of professional help

Given the complexity of the Tour Operators Margin Scheme, you may wish to seek expert guidance. Business owners must prepare by assessing the VAT risks posed by the countries they work in and clarifying which of their services fall under TOMS. You may also incur costs and administrative implications of additional VAT registrations for sales of EU travel and holidays.

The taxation for the travel industry VAT is complex and ever-changing. Caryl King can help your company negotiate a complex tax environment.

The Travel & Hospitality team provide up-to-date advice on taxation, audits, and outsourcing to help you meet industry regulatory requirements. We have specialist expertise in assisting with complex tax issues, TOMS and Travel Industry VAT regulations.
To find out more about our comprehensive range of services for the travel, hospitality, and tourism industry, contact our experienced advisors today.
Caryl King
Partner at Wilder Coe
Caryl is experienced in the fields of Audit and the preparation of financial statements, having worked with a variety of businesses across a large portfolio of clients.