Despite a ruling by the European Court of Justice, the UK will not be changing its application of the Tour Operators Margin Scheme – at least not yet.
The Tour Operators Margin Scheme (TOMS) is a well-intentioned, mandatory scheme designed to make life simpler for businesses that buy in and sell on travel services such as passenger transport, hotel accommodation and car hire. Under normal VAT rules, businesses supplying such services in multiple EU member states would need to register in each jurisdiction and account for VAT on the sales made in each state, while also recovering VAT on their costs. “Instead, under TOMS, they only account for VAT on their profit margin in the member state where they are established,” says Gwen Ryder, Moore Stephens VAT expert. “Businesses can’t recover VAT on their costs, but they do gain simpler VAT accounting.”
Various EU member states have been applying TOMS in different ways, however, leading the European Commission to bring infraction proceedings against eight of them in the European Court of Justice (ECJ). The UK was not included, but the court’s ruling does have implications for the UK’s approach.
“Currently, HMRC requires businesses to use TOMS if they are selling to the end traveller, but not if they are providing the services wholesale,” Gwen says. “In that case, normal VAT rules apply. In addition, HMRC only requires businesses to carry out their TOMS calculation annually using global figures for the year.” Both these approaches run counter to the ECJ’s ruling, which states that wholesales supplies should be covered by TOMS, and the TOMS calculation should be carried out on an individual transaction basis.
Having considered the court’s ruling, HMRC published its response at the end of January in Revenue & Customs Brief 05/14. “HMRC has decided not to alter the UK approach for the time being,” Gwen says. “This is because the EC has indicated it intends to carry out a review of TOMS, which could result in significant changes to the scheme in future. Therefore, as HMRC notes, any changes made now to the UK approach could potentially be reversed in future, and would be disruptive and costly for businesses.”
Nevertheless, any business can decide to operate TOMS in line with the ECJ’s decision. “Some businesses could find they benefit from applying TOMS to wholesale supplies,” Gwen notes. “For example, a business established overseas but buying in and selling on UK hotel rooms on a wholesale basis might benefit from using TOMS, rather than the normal VAT rules.”
For other businesses, it is a case of ‘watch this space’. We will keep you posted about any future EC review and subsequent potential changes to the scheme in the UK.
ContactsUK VAT team
Related linksVATHotels & leisure