For businesses in the travel & tourism sector, VAT can be tricky to navigate—especially with the intricacies and challenges of the Tour Operators Margin Scheme (TOMS). If you’re feeling overwhelmed by the rules, you’re not alone. But don’t worry; help is available. Cangaf Ltd. is an expert in VAT filing and can guide you through the TOMS maze with ease.

What is TOMS VAT?

Tour Operators Margin Scheme is a special VAT system for businesses in the travel industry. It helps simplify VAT accounting by focusing on the profit margin instead of the full selling price. However, understanding the ins and outs of Tour Operators Margin Scheme can still be challenging, especially since the rules change over time. Whether you’re based in the UK or the EU, it’s crucial to stay on top of these rules to avoid mistakes.

Why Tour Operators Margin Scheme Matters to Your Business

TOMS applies to businesses like tour operators, travel agents, event organisers, and even accommodation providers who sell travel services in their own name. If you’re selling travel packages sourced from third-party suppliers, Tour Operators Margin Scheme affects your VAT accounting, and getting it right is key to staying compliant.

Here’s What TOMS Covers:

• Accommodation
• Passenger transport (e.g., flights, trains, cruises)
• Excursions and activities
• Car hire
• Catering and admission tickets (if sold alongside travel services)

Understanding which services are included and how to calculate VAT is vital for staying compliant. This isn’t something you can afford to get wrong.

How Does TOMS Work?

In simple terms, VAT is only due to the profit margin of the travel services you sell—not the full sale price. This makes things easier in some ways but harder in others. Since Brexit, the rules for UK businesses have changed slightly, but the key principle remains the same: VAT is calculated on the margin between what you buy and sell the travel services for.

TOMS VAT Calculation Simplified

VAT under Tour Operators Margin Scheme works differently from standard VAT accounting. It’s based on the margin, not the total sale price. Here’s a quick guide to how the VAT calculation works:

Step-by-Step Example:

Imagine you are selling a travel package that includes:

• Hotel Accommodation: £600 (including VAT)
• Flight: £180
• Car Hire: £120 (including VAT)

So, your total costs (including VAT) come to £900.

Next, you sell the package to your customer for £1,500.

Here’s how the VAT is calculated:

1. Calculate the margin: £1,500 (sale price) – £900 (cost price) = £600 margin.
2. Identify the standard-rated costs:
   • The accommodation and car hire are standard-rated (i.e., VAT is charged to them).
   • The flight is zero-rated (no VAT).
   • Standard-rated costs: £720 (accommodation + car hire).
   • Zero-rated costs: £180 (flight).
3. Proportion of VAT on the margin: Of your £600 margin, 80% comes from the standard-rated components (£480).
4. Calculate VAT on the standard-rated margin: The VAT rate is 6% (for example purposes).
   £480 * 6% = £28.80 VAT due.

The Benefits of Tour Operators Margin Scheme

While the rules may seem complex, Tour Operators Margin Scheme does offer several benefits, including:

• Reduced Overseas VAT Costs: Without TOMS, you’d have to register for VAT in every country where you operate. TOMS helps you avoid this hassle.
• Simplified VAT Accounting: TOMS makes your VAT accounting easier by allowing you to focus only on the margin rather than individual components.

The Challenges You Need to Know About

As helpful as TOMS can be, it’s not without its challenges:

• Complex Compliance: Getting the margin calculations right can be tricky.
• VAT on Zero-Rated Services: Under TOMS, even zero-rated services like flights may still be subject to VAT, which isn’t the case under normal VAT rules.
• No VAT Invoices: You can’t issue VAT invoices under TOMS, which can be problematic if you’re selling to businesses that expect to reclaim VAT.

Let Cangaf Ltd. Help You Understand TOMS

Understanding TOMS and applying it correctly can save your business time, money, and headaches. But doing so requires expertise. That’s where Cangaf Ltd. comes in.

As experts in VAT filing, Cangaf Ltd. can ensure your VAT calculations and returns are correct and compliant. We’ll guide you through every step of this VAT rule, offering tailored advice and proactive support to help your travel business thrive.

Tour Operators’ Margin Scheme (VAT Notice 709/5): This comprehensive guide explains how businesses should account for VAT if they buy in and resell travel facilities as a principal or undisclosed agent. It covers the scope of TOMS, how to calculate the margin, and specific rules for different types of supplies.

gov.uk

Revenue and Customs Brief 5 (2024): Tour Operators’ Margin Scheme for business-to-business (B2B) wholesale supplies: This brief outlines a technical change to the VAT treatment of B2B wholesale supplies in relation to TOMS. It clarifies that businesses can choose whether to apply TOMS to these supplies.

gov.uk

Travel agents (VAT Notice 709/6): While focused on travel agents, this notice provides relevant information on VAT accounting, including when the Tour Operators’ Margin Scheme applies and how to handle various types of travel-related transactions.

gov.uk