The Tour Operators Margin Scheme (‘TOMS’) applies to businesses that buy in and re-sell travel services, including but not limited to accommodation and passenger transport). This compulsory scheme was introduced as a means to simplify VAT accounting with respect to the onward supply of qualifying travel services by allowing the tour operator to account for VAT on the profit margin of the onward supply in their place of establishment, as opposed to registering for VAT in each EU country where the services and goods are enjoyed. Therefore, should a UK business make qualifying supplies of EU travel, solely the margin (sales cost less initial purchase cost) is VATable in the UK and is included when calculating whether a business exceeds the UK VAT registration threshold and becomes liable to register for VAT. A condition of TOMS is that the travel services sold must be done so in the trader’s name to the end user without material alteration, with those providing accommodation services not being responsible for the upkeep of the property. 

There is an upcoming tribunal case relevant to the application of TOMS, specifically with respect to serviced accommodation. This was prompted by a trader renting property from a third party and then renting this out as serviced accommodation/holiday lets. In letting this property out, the trader provided additional furniture and other services and this, coupled with a difference in the lengths of lease from the original rental, led HMRC to concluded it had been ‘materially altered’ and that the property being let as holiday accommodation is different to that being rented in. Should the Tribunal agree with HMRC’s definition, it will require those providing serviced accommodation in this manner to account for VAT on the full value of the supply, as opposed to solely the profit margin due under TOMS.  

If you or your client provide serviced accommodation in relation to rented property, or any other services that may fall under the scope of TOMS, and wish to clarify your VAT obligations in light of the upcoming Tribunal case, please call our free VAT helpline for expert advice.