What is the Tour Operators Margin Scheme (TOMS) position following the European Court of Justice recent decisions about wholesale supplies and TOMS calculation? I’ve been getting a lot of enquiries about TOMS, and I thought it’d be a good idea to translate HMRC’s briefing into plain language.

Who needs to know about TOMS?

  • Tour operators and other businesses that buy and sell travel services, either on their own or packaged with other supplies like conference or training facilities, passenger transport, hotel accommodation and car hire
  • Accountants, consultants and anyone else who gives VAT advice to such businesses

About TOMS

TOMS is a mandatory EU VAT accounting scheme for businesses which buy in and sell on travel and related services in more than one EU member state.

Under normal VAT accounting rules they have to register, recover VAT on their costs and account for VAT on sales separately in each country. Under TOMS they can’t recover VAT on the services they buy in. They can only recover VAT on profits in the country they’re established.

How does HMRC treat TOMS?

In Britain HMRC only applies TOMS to supplies provided to consumers and businesses for their own consumption, for example business travel for employees. Travel services supplied to another business for onward sale, ie. wholesale, are subject to normal VAT rules. HMRC asks businesses to do their TOMS calculation annually using global figures for the entire year.

What has the ECJ decided?

The EU Commission took action against Spain, Poland, Italy, Czech Republic, Greece, France, Finland and Portugal about the way they operated TOMS, ruling that:

  • wholesale supplies should be covered by TOMS
  • the TOMS calculation should be done for individual transactions

What does HMRC think?

The ECJ’s decision is binding on all EU countries. But HMRC has decided not to change the way they treat TOMS because the EU Commission says it intends to review it, which might mean everything has to change yet again. Change is disruptive and expensive. HMRC would rather just do it once. But they’ll be reviewing things again in a year’s time.

What if I want to operate TOMS the new way?

It might well turn out that some tour operators benefit from including wholesale supplies in TOMS. You can change the way you treat TOMS if you like, so you’re in line with the ECJ’s decisions

Want more guidance

You can get more help with TOMS in VAT Notice 709/5, ‘Tour Operators Margin Scheme’. The treatment of wholesale supplies is explained in paragraph 3.1, and details of the margin scheme calculation are covered in sections 5 and 8 to 12.

On the other hand, if you’d rather not struggle with HMRC’s infamously dense and difficult prose, come to me for plain language support and advice!