New HMRC policy on the Tour Operators’ Margin Scheme for B2B wholesale supplies

26 April 2024| CATEGORIES: B2B, HMRC guidance, TOMS| TAGS: B2B wholesale, New HMRC policy, TOMS

HMRC have published RCB 5 (2024) on the application of the Tour Operators’ Margin Scheme (TOMS) for business-to-business (B2B) wholesale supplies.  The brief explains that businesses can choose if they want to apply the Tour Operator’s Margin Scheme (TOMS) to B2B wholesale supplies.

What is the TOMS?

The TOMS is a mandatory VAT accounting scheme for businesses which buy in and sell certain travel services, such as:

• passenger transport
• hotel accommodation
• car hire.

Under the TOMS, tour operators cannot recover any VAT on the services they buy in, but only account for VAT on their profit margin.

HMRC’s policy is that TOMS is mandatory for supplies to final consumers or to businesses for their own consumption. HMRC’s previous policy with respect to services supplied to other businesses for onward sale (B2B wholesale supplies) was that they were subject to the normal VAT rules, although tour operators could choose to include them in TOMS.

Following a recent First Tier Tribunal case HMRC have reviewed their approach and guidance on the correct treatment of B2B wholesale supplies.

What has changed?

HMRC have concluded that B2B wholesale supplies are within the scope of TOMS, but by concession tour operators may opt out of TOMS with respect to these supplies if they wish.  The Brief states that this is a technical change to the legal interpretation and will not affect tour operators’ ability to choose whether to apply the TOMS or not to B2B wholesale supplies.

The change applies with immediate effect.

HMRC’s VAT Notice 709/5 Tour Operators’ Margin Scheme  has been updated, in particular at paragraph 3.2, to reflect HMRC’s new policy.

Revenue and Customs Brief 5 (2014): Tour Operators Margin Scheme (TOMS) is withdrawn with immediate effect.