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Tour Operators' Margin Scheme
The Tour Operators' Margin Scheme (TOMS) is a special VAT scheme for businesses that buy and resell travel services, accommodation, and certain other services in their own name. Instead of accounting for VAT on your full selling price, you only pay VAT on your profit margin —...
# Tour Operators' Margin Scheme
The Tour Operators' Margin Scheme (TOMS) is a special VAT scheme for businesses that buy and resell travel services, accommodation, and certain other services in their own name. Instead of accounting for VAT on your full selling price, you only pay VAT on your profit margin — the difference between what you charge customers and what you pay suppliers. This applies even if operating a travel service isn't your main business activity.
Who must use TOMS
You must use TOMS if you act as a principal or undisclosed agent (meaning you act in your own name rather than clearly on behalf of another business) when selling what are called "Margin Scheme supplies."
This requirement applies to any business making these types of supplies, even if travel isn't your main activity. Examples include:
- A hotelier who arranges coach transport to collect guests
- A coach operator who books hotel accommodation to create a package
- A company organising conferences with hotel accommodation for delegates
You're not limited to traditional tour operators — TOMS can apply to any business that buys in and resells travel-related services in this way.
What TOMS covers
Margin Scheme supplies
Certain services are always treated as Margin Scheme supplies when you buy them in and resell them without material alteration for the direct benefit of a traveller:
- Accommodation
- Passenger transport
- Hire of a means of transport
- Trips or excursions
- Services of tour guides
- Use of special lounges at airports
Additional services in packages
Other supplies can also become Margin Scheme supplies if they are:
- Bought in and sold on without material alteration for a traveller's direct benefit
- Provided as part of a package with one or more of the core supplies listed above
This category includes catering, admission tickets, and sports facilities when packaged with accommodation, transport, or other core travel services.
What TOMS doesn't cover
TOMS does not apply to:
- Supplies you arrange as a disclosed agent or intermediary where your commission is clearly identifiable
- In-house or agency supplies made separately (not packaged with Margin Scheme supplies)
- Supplies that are incidental to your other supplies
How TOMS works
The basic principle
Under normal VAT rules, you account for VAT on your full selling price and reclaim VAT on your purchases. TOMS works differently.
Under TOMS, you:
- Cannot reclaim VAT charged on the travel services and goods you buy in and resupply (VAT is accounted for by your suppliers — the hotels, airlines, and so on)
- Only account for VAT on your margin — the difference between what you receive from customers and what you pay suppliers
- Can still reclaim VAT on business overheads outside TOMS, subject to normal rules
What counts as your margin
Your margin is calculated as the amount you receive from your customer (including any amounts paid on your behalf by third parties) minus the amount you pay your suppliers.
TOMS treats a bundle of different travel services supplied to the same person as a single supply made in the UK, simplifying the VAT treatment considerably.
Understanding 'Margin Scheme packages'
A Margin Scheme package is a single transaction that may include:
- One or more Margin Scheme supplies
- Margin Scheme supplies sold together with an in-house supply
- Margin Scheme supplies sold together with an agency supply
In-house supplies
What are in-house supplies?
In-house supplies are services you provide from your own resources, or services resulting from purchases you've materially altered or further processed so that what you supply is different from what you purchased.
How VAT applies to in-house supplies
If you make in-house supplies on their own (not packaged with Margin Scheme supplies), they are taxed under normal VAT rules and TOMS does not apply.
However, if you package in-house supplies together with Margin Scheme supplies, the scheme brings these in-house supplies into the TOMS calculation as well.
Who is a 'traveller'?
For TOMS purposes, a traveller is any entity — including a business or local authority — who receives a Margin Scheme supply, provided they're not receiving it for the purpose of reselling it.
This means TOMS applies whether you're selling to consumers or to business customers, as long as those customers are the end users of the travel services.
Geographic scope
TOMS applies to travel services enjoyed both within and outside the UK. The scheme operates throughout Great Britain and Northern Ireland.
Getting help
If you're unsure whether TOMS applies to your business, contact the VAT helpline. HMRC may ask you to provide copies of your contracts, brochures, booking terms and conditions, and other sales literature to help determine whether you must use the scheme.
Because TOMS significantly changes how you account for VAT — particularly because you cannot reclaim VAT on bought-in travel services — it's important to establish whether the scheme applies to your supplies.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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