Changes to the Tour Operators’ Margin Scheme

14 May 2009

This scheme has always been difficult enough to operate, without any grey areas of misunderstanding, and often appears to strike fear into anyone falling within the broad definition of a ‘tour operator’.

It has now been accepted that the UK has applied certain aspects of the scheme incorrectly, i.e. those aspects do not comply with EU law.

Therefore, changes will be implemented from 1 January 2010. When these errors first came to light, there was a consultation period with affected businesses, ending 31 August 2008 and with a view to implementing the necessary changes from 1 April 2009.

However, responses to the consultation resulted in a postponement to 1 January 2010.

The changes affect:

supplies to business customers for subsequent resale,

supplies to business customers for their own consumption and supplies of educational school trips, and

use of market values in respect of in house supplies.

HMRC used to allow relevant businesses selling to other travel businesses for onward resale to the traveller, to account for such sales under TOMS even though the scheme should only be for sales to travellers. This was for simplification.

However, these will now have to be accounted for under the normal VAT rules, sometimes necessitating registration in other EU Member States.

Supplies to other businesses for their own consumption are within TOMS. However, the UK has allowed an opt out so that customers can recover VAT consequently chargeable. This also applied to the provision of school trips as they were treated as a non-business activity.

The EU Commission has said a traveller is not just the person physically travelling but includes these business customers and LEAs buying school trips. Therefore, such supplies will now be under the scheme and customers will not have the ability to claim input tax.

Finally, where it is possible to determine a market value for the in-house element in a selling price comprising in-house and bought-in compnents, the Commission say that value must be used.

It would appear the UK’s attempts to simplify this confusing provision have just been thwarted.