What is the Tour Operators Margin Scheme (TOMS)?

The Tour Operators Margin Scheme (TOMS) is a special Value Added Tax (VAT) scheme that applies to businesses selling travel-related services as a package. Instead of calculating VAT on the total selling price, businesses account for VAT only on the profit margin they make from eligible travel services.

TOMS was introduced to simplify VAT accounting for tour operators, travel agents, and businesses that buy and resell travel services without significantly altering them.

Who does TOMS apply to?

The Tour Operators Margin Scheme typically applies to businesses that:

Buy and resell accommodation.
Sell passenger transport services.
Package holidays and travel experiences.
Combine travel services into a single package for customers.
Act as principals rather than intermediaries when selling travel arrangements.

Although traditionally associated with tour operators, other businesses supplying qualifying travel packages may also need to use TOMS.

How does TOMS VAT work?

Under the Tour Operators Margin Scheme, VAT is calculated on the profit margin rather than the full selling price.

The profit margin is calculated as:

Selling price – Cost of purchased travel services = VAT margin

This means VAT is only payable on the value added by the business, making VAT accounting simpler for qualifying travel packages.

Services covered by TOMS

The scheme generally applies to travel services purchased and resold for the direct benefit of travellers, including:

Hotel and holiday accommodation
Passenger transport
Package holidays
Guided tours
Excursions and sightseeing trips
Certain travel-related services included within a package

VAT invoicing under TOMS

Businesses operating under TOMS must maintain appropriate VAT records and calculate VAT on their margin. Unlike standard VAT invoices, the VAT charged under TOMS is not usually shown separately to customers because it is included within the margin calculation.

Can you reclaim input VAT?

One of the key features of TOMS is that businesses generally cannot reclaim the input VAT incurred on travel services purchased for direct resale to customers.

However, VAT on normal business overheads such as office expenses, marketing, or professional services may still be recoverable under the normal VAT rules.

Record keeping requirements

Businesses using the Tour Operators Margin Scheme should keep accurate records of:

Selling prices
Purchase costs
Profit margins
VAT calculations
Customer invoices
Supporting accounting documentation

Maintaining detailed records is essential in the event of a VAT inspection or audit.

Changes to costs or selling prices

If the cost of travel services or the selling price changes after the original booking, businesses may need to adjust their TOMS calculations to ensure the correct amount of VAT is reported.

Benefits of the tour operators margin scheme

Using TOMS offers several advantages:

Simplified VAT accounting
VAT calculated only on profit margins
Reduced administrative burden
Suitable for businesses selling packaged travel services
Consistent VAT treatment across qualifying travel supplies

TOMS and international travel

The VAT treatment of travel services can vary depending on where the services are enjoyed and the applicable place of supply rules. Businesses selling both UK and international travel should understand how TOMS applies to domestic and overseas travel arrangements.

Staying compliant

VAT rules for the travel industry can be complex and may change over time. Businesses using the Tour Operators Margin Scheme

should regularly review current HMRC guidance and seek professional advice where necessary to ensure ongoing compliance.

Need expert advice on TOMS?

If your business sells travel packages or travel-related services, understanding the Tour Operators Margin Scheme is essential. Professional VAT advice can help ensure your business applies the correct VAT treatment, maximises compliance, and avoids costly errors.

Tour Operators Margin Scheme (TOMS)