The Tour Operators’ Margin Scheme (TOMS): A Guide for Travel Businesses

If you sell holidays, accommodation or travel that you buy in from other businesses, you may have to use the Tour Operators’ Margin Scheme (TOMS) for VAT. It is not optional – if your sales fall within the scheme, you must use it.

Who has to use TOMS?

TOMS applies to businesses that buy in travel services – such as hotel rooms, flights, coach travel or excursions – and resell them in their own name, without materially changing them. It applies even if travel is not your main business, for example an event organiser that sells packages including accommodation.

How does TOMS work?

Instead of charging VAT on the full selling price, you account for VAT only on your margin – the difference between what the customer pays you and what you paid your suppliers. You cannot reclaim the VAT on the travel services you buy in for resale.

• The margin on travel enjoyed in the UK is standard-rated (20%).
• The margin on travel enjoyed outside the UK is zero-rated.

These rules have applied since 1 January 2021, when the UK left the EU VAT system. If you sell travel that takes place in EU countries, check whether you also have VAT obligations there.

Business-to-business sales

If you sell travel wholesale to other businesses that resell it, you can choose to treat those sales outside TOMS. Sales to businesses for their own use (for example, staff travel) must still go through the scheme.

Calculating the margin

TOMS calculations are made each VAT period and finalised in an annual adjustment. Errors are common, especially where packages mix bought-in travel with your own services. Keeping clear records of each package’s costs and selling price makes the calculation much easier. See HMRC’s VAT Notice 709/5 for the full rules, or ask us to check your figures.

Need help?

Accountancy N Tax Services is an accountancy practice in Wallington, run by an IFA Accredited Member in Public Practice, helping clients across London online or face-to-face. Your first consultation is free – call 020 7112 9098 or email info@accountancyntax.co.uk.