What is the Tour Operator's Margin Scheme (TOMS)?
The Tour Operator's Margin Scheme (TOMS) is a special UK VAT scheme that applies to businesses buying in and reselling travel, accommodation and certain other bought-in services as principal, usually as part of a package. Rather than charging VAT on the full sale price, a business under TOMS accounts for VAT only on its margin, the difference between what it pays suppliers and what it charges customers.
How TOMS works
Under TOMS, a tour operator does not reclaim input VAT on the bought-in supplies that make up a package, such as hotel rooms or transfers purchased from suppliers, and does not show VAT separately on customer invoices. Instead, VAT is calculated on the overall margin the business makes across its margin-scheme sales, typically confirmed through an annual calculation once a full financial year of bookings has completed. This differs from the standard VAT treatment used for most goods and services, and businesses often need dedicated postings within their finance system, alongside standard processes such as VAT Return (MTD for VAT) reporting, to keep TOMS-eligible sales properly separated from other business activity.
How UK travel businesses use TOMS
- A tour operator packages flights, hotels and transfers bought from third-party suppliers and calculates VAT on the margin between what it pays suppliers and what it charges customers, rather than on the full holiday price.
- A travel agency selling its own in-house travel services alongside bought-in packages keeps in-house sales and TOMS-eligible sales separate for VAT purposes.
- An SME tour operator uses a year-end margin calculation to work out its TOMS VAT liability, since the exact liability can typically only be finalised once a full financial year of bookings has completed.
- A growing travel business builds TOMS-aware VAT tracking into its finance system so provisional margin and VAT can be reviewed month to month, rather than reconstructed at year end.
How Advantage helps travel businesses manage TOMS
Advantage configures Dynamics 365 Business Central for travel and tour operators through its EdgeVoyage accelerator, structuring dimensions and VAT posting groups so margin scheme calculations can be tracked throughout the year rather than reconstructed at year end.
Frequently Asked Questions
Who has to use TOMS?
TOMS applies to businesses acting as principal, buying in and reselling travel, accommodation or certain other bought-in services as part of a package, in their own name and for their own account. Businesses acting purely as agents, arranging bookings on behalf of a supplier without taking on that risk, are not caught by TOMS in the same way.
Can TOMS VAT be reclaimed on costs?
No. Businesses cannot recover input VAT on the direct costs of goods and services bought in for resale under TOMS, since VAT is only accounted for on the margin rather than on the underlying supplier costs and the sale price separately.
Does TOMS apply to a whole travel business or only some sales?
TOMS only applies to margin-scheme-eligible supplies bought in and resold as principal. Other activities a travel business carries out, such as in-house services it provides directly rather than buys in, are generally subject to normal VAT rules instead.
