VAT and TOMS: Complex and costly
Introduction
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 (ie; that act in their own name). In many cases, it enables VAT to be accounted for on travel supplies without businesses having to register and account for VAT in every EU country in which the services and goods are enjoyed. It does, however, apply to travel/accommodation services enjoyed within the UK, within the EU but outside the UK, and wholly outside the EU.
Under the scheme:
- VAT cannot be reclaimed on margin scheme supplies bought in for resale. VAT on overheads outside the TOMS can be reclaimed in the normal way.
- A UK-based tour operator need only account for VAT on the margin, ie; the difference between the amount received from customers and the amount paid to suppliers.
- There are special rules for determining the place, liability and time of margin scheme supplies.
- VAT invoices cannot be issued for margin scheme supplies.
- In-house supplies supplied on their own are not subject to the TOMS and are taxed under the normal VAT rules. But a mixture of in-house supplies and bought-in margin scheme supplies must all be accounted for within the TOMS.
- No VAT is due via TOMS on travel/accommodation/tours enjoyed outside the EU.
Who must use the TOMS?
TOMS does not only apply to ‘traditional’ tour operators. It applies to any business which is making the type of supplies set out below even if this is not its main business activity. For example, it must be used by
- Hoteliers who buy in coach passenger transport to collect their guests at the start and end of their stay
- Coach operators who buy in hotel accommodation in order to put together a package
- Companies that arrange conferences, including providing hotel accommodation for delegates
- Schools arranging school trips
- Clubs and associations
- Charities.
The CJEC has confirmed that to make the application of the TOMS depend upon whether a trader was formally classified as a travel agent or tour operator would create distortion of competition. Ancillary travel services which constitute ‘a small proportion of the package price compared to accommodation’ would not lead to a hotelier falling within the provisions, but where, in return for a package price, a hotelier habitually offers his customers travel to the hotel from distant pick-up points in addition to accommodation, such services cannot be treated as purely ancillary.
Supplies covered by the TOMS
The TOMS must be used by a person acting as a principal or undisclosed agent for
- ‘margin scheme supplies’; and
- ‘margin scheme packages’ ie single transactions which include one or more margin scheme supplies possibly with other types of supplies (eg in-house supplies).
‘Margin scheme supplies’ are those supplies which are
- bought in for the purpose of the business, and
- supplied for the benefit of a ‘traveller’ without material alteration or further processing
by a tour operator in an EU country in which he has established his business or has a fixed establishment.
A ‘traveller’ is a person, including a business or local authority, who receives supplies of transport and/or accommodation, other than for the purpose of re-supply.
Examples
If meeting the above conditions, the following are always treated as margin scheme supplies.
- Accommodation
- Passenger transport
- Hire of means of transport
- Use of special lounges at airports
- Trips or excursions
- Services of tour guides
Other supplies meeting the above conditions may be treated as margin scheme supplies but only if provided as part of a package with one or more of the supplies listed above. These include
- Catering
- Theatre tickets
- Sports facilities
Of course, who knows how Brexit will impact TOMS. It may be that UK businesses will be unable to take advantage of this easement and will be required to VAT register in every Member State that it does business * shudder *
This scheme is extremely complex and specialist advice should always be sought before advising clients.