Not with standing its name, this special VAT scheme, does not just apply to tour operators, but to anyone who buys in and sells on travel services. And despite its reputation to the contrary it is actually a massive simplification for travel businesses.
The key trigger for the TOMS to apply is that supplies are bought in and sold on, without material alteration, by a business in its own name. Relevant supplies are as follows:
• Accommodation
• Passenger transport
• Hire of a means of transport
• Use of airport lounges
• Trips or excursions
• Services of tour guides
These types of services bought in and sold on are always relevant margin scheme supplies. Other supplies which may be relevant to the TOMS are catering, theatre tickets and sports facilities.
For this reason a hotel which supplies attraction tickets or a golf course pass to its guests or a company organising conferences which include booking accommodation, should carefully review the nature of their supplies to confirm whether they should be using the scheme to calculate the correct VAT liability.
The scheme is designed to simplify VAT accounting for businesses providing cross border travel packages, by changing the place of supply of their services. Without the TOMS, a travel operator based in the UK, providing accommodation for guests in hotels across the EU, would be required to register for VAT in each country where it supplied hotel accommodation. Using the TOMS, it reports the sale of the accommodation on its UK return. VAT is only charged on the margin it makes on the accommodation, but it is not able to claim the VAT charged by its supplier when it buys in the hotel rooms. A booking agent who does not actually supply the accommodation but is clearly acting as the disclosed agent of the hotel is not required to use the scheme.
Businesses required to use the TOMS calculate their VAT liability based on the margin they make on relevant supplies. Packages to destinations in the UK and EU are all subject to VAT at standard rate. Trips outside of the EU are zero rated. A business which only makes trips outside the EU may apply for exemption from registration, however if registered they would be entitled to recover VAT on overheads costs without charging VAT to customers.
A business which does not fall into the standard definition of a travel agency can inadvertently fall within the scheme. For example, conference organisers which make accommodation bookings for delegates are making margin scheme supplies. On the contrary, a conference organiser which books meetings rooms, arranges speakers and audio-visual equipment, and gives delegates details under which to make their own accommodation bookings will not be making TOMS supplies, but may have an obligation to register and account for VAT in the country where the conference takes place.
A bus company operating in its own right, incurs costs for fuel and other costs on which it claims back VAT. The passenger transport services it supplies are zero rated. By contrast a bus company which buys in transport services from another operator and sells those services on to a business for the benefit of their employees, will be making margin scheme supplies. The bus company would be required to account for VAT on the margin it makes on buying in and selling on those services and cannot claim VAT on direct costs of making the supplies. In order to be able to apply an agency model to those bought in and sold on services, it must be clear to the customer who is actually making the supply of travel services. Any commission for providing the service must be clearly identifiable.
Whilst the calculations required to apply the TOMS can appear daunting, for most businesses affected these are actually relatively straight forward. For further information or help with the TOMS, please speak to your usual Menzies contact or Sarah Barron on sbarron@menzies.co.uk or +44 1489 566298