Tour Operators Margin Scheme (TOMS)
The Tour Operators Margin Scheme (TOMS) is a mandatory EU VAT accounting scheme for businesses which buy in and sell on certain travel services, such as passenger transport, hotel accommodation and car hire. This can include tour operators, travel agents and events agencies. Under TOMS, businesses cannot recover any VAT on the services they buy in, but only account for VAT on their profit margin in the Member State where they are established. The effect of this is to share the gross VAT revenue between the state where the operator is based and the state(s) in which the supplies actually occur.
In the UK, TOMS applies only to supplies to final consumers or to businesses for their own consumption (for example, business travel for employees). Travel services supplied to another business for onward sale ('wholesale' supplies) are subject to normal VAT rules. TOMS calculations are made annually using global figures for the year as a whole.
The most contentious areas within the TOMS regime tend to revolve around the definitions of disclosed and undisclosed agents (supplies made by disclosed agents fall outside the scheme) and the treatment of “wholesale” supplies, i.e. the sale of travel services to another business for onward supply to the end customer.
In September 2013, the European Court of Justice ruled that wholesale supplies should be included in TOMS and that the TOMS calculation should be carried out on an individual transaction basis. Whilst this decision is binding on all EU member states, HMRC has decided not to implement these changes in the UK for the time being. The European Commission, whose proceedings against 8 member states were overturned by the ECJ decision, have announced their intention to review of the whole TOMS scheme. Consequently, HMRC will wait to see if the Commission introduces new laws to modify the operation of TOMS. In the mean time, any UK business which would benefit from including wholesale supplies within TOMS can opt to comply with the ECJ ruling.