Navigating the complexities of the Tour Operator’s Margin Scheme (TOMS) and VAT

Navigating the complexities of the Tour Operator’s Margin Scheme (TOMS) and VAT

The Tour Operator’s Margin Scheme (TOMS) has gained a reputation – not wholly undeserved – for complexity that makes most businesses (and VAT advisers) pale.

The place of supply rules for VAT are such that a business offering accommodation, travel, trips and other related supplies throughout the EU could require 28 VAT registrations; one for each Member State.

TOMS is a scheme that enables such businesses to have one place of registration in the EU. Like other margin schemes, whilst the VAT on bought-in goods and services is not reclaimable, VAT is only due on the profit made in selling these on to the consumer.

Two recent issues highlight the potential for misunderstanding. It is important to note that both of these are an Advocate General’s (AG’s) opinion, and whilst the European Court usually follows an AG’s opinion it cannot be guaranteed.

Alpenchalets rented holiday accommodation in Germany, Austria and Italy, and provided additional services such as laundry, cleaning and fresh daily bread. The business had accounted for VAT through the TOMS to the German tax authorities, as it was a German-based company.

The business then put in a claim for overpaid VAT, on the basis that VAT on the accommodation should have been accounted for at the reduced rate available in Germany.

The appeal raised questions: not only about the rate of VAT applicable, but whether a supply of accommodation (with some ancillary services) meant that TOMS would apply at all.

The AG advised that one bought-in service of accommodation or travel was enough for TOMS to apply, though the issue of the ancillary services was not addressed. The AG also advised that, under TOMS, the reduced rate of VAT could not apply.

The second case relates to when VAT should be accounted for under TOMS. The taxpayer received payments on account, but said that it could only account for the VAT due when the margin was known. The AG advised that VAT is declarable when the payments were received, and even suggested a method to calculate the margin at the time of payment.

If the AG’s opinions above are supported by the courts, then there is potential for TOMS to be applicable in more circumstances than most businesses thought, and the methodology of accounting for VAT on payments as received could add further complexities.

For those despairing at the thought of more complex TOMS, there are some commentators who are questioning if the scheme will be applicable in the UK at all, if we end up with a “no deal” exit from the EU.

However, without TOMS, businesses may need to register in each Member State they make supplies in, or perhaps register in one Member State and make TOMS supplies and calculations from there.

At Rickard Luckin, both of these options can be explored through our membership of the MGI network, a Top 20 ranked international accountancy network with presence in over 80 countries.

To find out more about the specialist VAT services we provide, please contact a member of our team.

Ian Marrow

Client Service Director