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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 due.


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 As announced in Revenue & Customs Brief 27/09, both of these arrangements are being withdrawn with effect from 1 January 2010.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.

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© Crown Copyright 2009.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2009-12-10 12:56:58 in Tax Articles

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