HM Revenue and Customs Brief 74/09
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Issued 4 December 2009
Changes to the Tour Operators’ Margin Scheme: transitional provisions
Revenue & Customs Brief 27/09 outlined changes to the Tour Operators’ Margin
Scheme (TOMS) which will take effect from 1 January 2010. This Revenue & Customs
Brief sets out transitional arrangements in relation to supplies that straddle
this date. These are necessary because the TOMS has its own rules with regard to
the time of supply, deductibility of input tax and calculation of output tax
The TOMS is a mandatory scheme which applies to supplies made 'for the direct
benefit of the traveller', that is, the end customer. However, the UK has
permitted businesses to opt out of the TOMS for supplies made to business
customers for their own consumption, for example, business travel for employees,
thus allowing business customers to recover input tax on such supplies. The UK
has also allowed businesses to include within the TOMS, supplies made to other
tour operators for onward resale, that is, supplies that are not being made for
the direct benefit of the traveller. As announced in Revenue & Customs Brief
27/09, both of these arrangements are being withdrawn with effect from 1 January
2010. The transitional arrangements outlined in this Brief are designed to
ensure that VAT is correctly accounted for on supplies that straddle this date.
TOMS time of supply rules
The TOMS has its own time of supply rules, which differ from the normal
rules. These are set out at paragraph 4.14 and 4.15 of Public Notice 709/5. The
operator must choose one of two methods to work out the tax point for margin
scheme supplies and any in-house supplies sold within a margin scheme package.
Method 1 uses the date of departure of the traveller or the first date on which
the traveller occupies any accommodation, whichever happens first. Method 2 uses
the date of receipt of payment of a certain size and a tax point is created when
a payment is received which exceeds 20 per cent of the selling price. A tax
point is also created each time the payments received to date which have not
already been accounted for exceed 20 per cent, when added together.
Input tax and output tax
Under the TOMS, tour operators cannot recover any UK or EC VAT charged on the
travel services bought in and resold – the suppliers of such goods and services
account for tax on them in their own Member States. In turn, they account for
VAT only on the margin achieved on their supplies under the TOMS, and not the
full selling price.
Effect of removal of opt-in
Removal of the opt-in and application of the normal rules mean that, where
tour operators have not previously recovered VAT on goods and services supplied
to them for the direct benefit of the traveller, they may recover that VAT from
1 January 2010 for supplies being made after this date. Equally, from 1 January
2010 they should account for output tax on supplies made after this date on the
full value of the supply (including payments received prior to 1 January 2010)
in accordance with the normal time of supply rules. A VAT invoice must also be
issued to customers. However, the customers, being themselves tour operators,
will only be able to recover VAT if they are in turn supplying the travel
services to another business for resale. If tour operators use the date of
receipt of payments exceeding 20 per cent of the selling price as their tax
point (and have accounted for output tax at that time), they should also issue a
belated VAT invoice in respect of those payments.
Effect of removal of opt-out
Removal of the opt-out means that the TOMS rules must apply to supplies of
designated travel services made after 1 January 2010. As the normal rules apply
before that date, tour operators may recover VAT on supplies of goods or
services received before 1 January 2010 for supplies being made for the direct
benefit of the traveller after that date. The secondary legislation withdrawing
the opt-out provides that the value of those supplies on which input tax is
recovered cannot be included in the calculation of the margin for supplies being
accounted for under the TOMS.
Equally, tour operators using the opt-out should account for VAT under the
normal rules where they issue a VAT invoice or receive a payment before 1
January 2010 for supplies of travel services being made by them to another
taxable person. This means that the selling price which feeds into box 2 of the
provisional calculation and box 1 of the annual calculation should reflect only
the balance of the price payable on or after January 2010.
About the Author
© Crown Copyright 2009.
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Article Published/Sorted/Amended on Scopulus 2009-12-10 12:56:58 in Tax Articles