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The tour operators margin scheme (TOMS) – HMRC policy update

TOMS is a special scheme for businesses that buy in and resell travel, accommodation and certain other services as a principal or undisclosed agent acting in your own name. It is a simplification measure which treats a bundle of supplies made to the same person as a single supply.

Last week, HMRC issued updates to TOMS notice 709/05 and a policy paper confirming their guidance on the correct treatment of B2B wholesale supplies.

HMRC have concluded that business to business (B2B) wholesale supplies are within the scope of TOMS, but by concession where this applies you may opt to treat the supplies outside of TOMS – can we make this phrase simpler?

Where a business decides to opt out of applying TOMS to B2B wholesale supplies, the normal place of supply rules apply.

This treatment was already in place, but HMRC have reviewed the situation and the publications confirm the outcome of their review.

The tour operators margin scheme – EC review delayed

The TOMS scheme is now over 40 years old.

With the growth of digital platforms, online travel marketplaces, and the UK’s exit from the EU, the European Commission (EC) is now reviewing the scheme and it is likely to affect UK tour operators.

Significant change is expected once the review is complete, which was originally due to be published in 2023. The EC indicated at the end of 2023 that the review has been paused until later in 2024, with an expectation it will be after the EU elections. So, a case of ‘watch this space’.

The main issues are:

  • The unfair competitive advantage for non-EU operators whose travel services sold in the EU do not attract VAT under the current scheme
  • There are various differences currently applied to the scheme by each of the 27 states of the EU, which can lead to confusion

Whilst TOMS is expected to remain in some form, there may be substantial alterations by the EU to the scheme with the aim of simplifying and modernising the rules.

Alongside the action being taken by the EC, Croatia and Germany have both reviewed the TOMS scheme and the way it applies to non-EU established tour operators.

Since January 2021, where a UK travel business make supplies in Croatia which would have previously been accounted for using TOMS, it has been required to register and account for VAT on these sales in Croatia and recover local VAT on individual supplies received, rather than applying the Croatian TOMS margin scheme or relying solely on UK zero rating of TOMS supplies.

Germany also intend to bring in similar requirements to Croatia, although they have currently postponed the requirement until December 2026.

It is likely that there are many changes to come in the way VAT is accounted for by businesses involved in the travel industry and which businesses account for VAT under the TOMS scheme.

Updates will be posted when the EU publish their findings.  Until then, we recommend that if you are making TOMS qualifying supplies in the EU, you regularly check to confirm if the country-specific rules remain the same.

FEATURING: Lisa Taylor
Lisa joined PKF Francis Clark in March 2020 as a VAT consultant. She previously worked for HMRC for over 15 years, gaining expert VAT technical… read more
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