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Open call for evidence

Review of the VAT treatment of travel services including the Tour Operators’ Margin Scheme

Published 28 October 2026

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This publication is available at https://www.gov.uk/government/calls-for-evidence/vat-treatment-of-travel-services-in-relation-to-the-tour-operators-margin-scheme/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme

Summary

Subject of this call for evidence

The government is reviewing the VAT Tour Operators’ Margin Scheme (TOMS). It is seeking views on how the TOMS is currently working and options to change, improve and simplify the application of VAT to travel services.

The government is also reviewing the treatment of travel services outside of the TOMS that are enjoyed in the UK but supplied by tour operators based outside the UK.

Scope of this call for evidence

The scope of the call for evidence includes the TOMS which applies to tour operators operating from the UK. The government is also consulting on the VAT treatment of travel services supplied outside of the TOMS and by overseas businesses which are consumed in the UK.

Who should read this

Suppliers of travel services, both those using the TOMS, tour operators established outside of the UK and wholesalers of travel services.

Customers consuming travel services, particularly business customers in the Meetings, Incentives, Conferences, and Events (MICE) sector and more generally for employee business trips.

Duration

The consultation will run from 28 October 2026 to 31 January 2027.

Lead official

The lead official is P. Bennet, Policy Manager, VAT Principles team of His Majesty’s Revenue and Customs.

How to respond or enquire about this call for evidence

Responses should be sent by email to: cfetoms@hmrc.gov.uk.

After the call for evidence

The government will consider the evidence submitted and will announce its full proposals in due course.

Getting to this stage

In 2017 the Office of Tax Simplification (OTS) suggested removing some businesses from the TOMS[footnote 1] [footnote 2] and simplifying the scheme calculation, recognising these changes may be considered post-EU exit.

HMRC had also received representations from tour operators and representative bodies about reinstating some features that had been removed over the years as a result of the challenges by the European Commission.

HMRC is also aware of reports of increased selling of UK based travel services from overseas suppliers which results in the avoidance of UK VAT.

In order to smooth the UK’s transition out of the EU limited changes were made to the scheme with the intention of a subsequent review.

Previous engagement

In February 2024 HMRC invited industry trade bodies and advisers to provide views on how the TOMS was working and what areas were causing concern.

1. Introduction

1.1. Scope of call for evidence

The purpose of this call for evidence is to collect views and information from businesses and consumers regarding the VAT treatment of travel services, including both current UK provisions and potential alternative VAT accounting mechanisms.

The government is also seeking views on its intention to ensure UK VAT is accounted for fairly on travel services used and enjoyed in the UK.

The views and suggestions collected through the call for evidence will inform future policy direction and legislative frameworks.

Key points to consider when responding to the specific questions:

  • is the Tour Operators’ Margin Scheme (TOMS) as it currently stands fit for purpose?
  • is the TOMS a distortion of the VAT system?
  • how would UK businesses be impacted if the TOMS were withdrawn?
  • could the TOMS be made to work better for UK tour operators if it was reformed?
  • views on the supplies of travel services made outside of the TOMS

The government has expressed some initial views throughout the document primarily to prompt discussion. These views should be read in that light and not as an indicator of its preferred outcome, unless indicated.

Respondents may also provide other relevant views and suggestions, with evidence, not specifically covered in this paper.

Respondents should bear in mind the government’s overarching objective of simplification and the avoidance of distortions to the tax.

Respondents are also invited to propose how ideas might be implemented in practice.

This call for evidence examines 3 distinct areas:

  • the Tour Operators’ Margin Scheme (TOMS)
  • travel services supplied outside of the TOMS
  • travel services supplied by overseas suppliers for the consumption in the UK

1.2. About you

When responding please say if you are a business selling travel services or consuming travel services, individual, professional adviser or representative body. In the case of professional adviser or representative bodies please provide information on the number and nature of people you represent and any other information or data you might have that helps address the questions below.

For businesses making supplies of travel services please provide further information relating to your supplies of travel services. Questions asking for approximate proportions can be answered with one of the broad ranges (< 25% or 25-50% or 50-75% or > 75%)

Question 1: What is the primary activity of your business (Optional: Standard Industrial Classification (SIC) Code, if known)?

Question 2. Approximately what proportion of your UK turnover relates to services currently accounted for under the Tour Operators’ Margin Scheme (that is excluding in-house supplies)?

Question 3: Approximately what proportion of your TOMS supplies are consumed in the UK and thus liable for VAT at the standard rate?

Question 4: Do you use the Wholesale opt-out (paragraph 3.2 of Notice 709/5) from the TOMS?

If so:

  • approximately what proportion of your travel supplies have you opted to treat as wholesale?
  • approximately what proportion are supplied to tour operators based outside the UK for consumption in the UK?
  • what were the approximate values of these supplies?

Question 5: Broadly, how would you describe the mix of customers for whom you apply the TOMS?

  • mainly consumers (B2C)
  • mainly businesses who sell on the supplies to consumers (B2B)
  • mainly businesses who consume your supplies themselves (B2BC.Paras 3.1 and 3.3 of VAT Notice 709/5 refers)
  • mix of the above

Question 6: Which of the following best describes the VAT position of your business?

  • VAT registered as turnover always above VAT threshold
  • VAT registered as turnover around threshold
  • VAT registered voluntarily meaning turnover below threshold
  • VAT not registered as turnover below threshold

Question 7: Approximately what proportion of services that your business buys in from suppliers (such as accommodation, transport, or activities) are standard-rated?

Question 8: Over the last 12 months, when assembling travel packages, how often did your business buy in services (such as accommodation, transport, or activities) from:

  • UK suppliers that were not VAT registered
  • supplies of accommodation that were exempt from VAT

And what was the approximate value of these supplies?

Question 9: Does your business sell travel services to, or buy travel services from, tour operators established outside the UK?

Question 10: Do you supply travel services to be consumed within the UK from outside the UK? If so, what is the approximate value of sales made to:

  • UK Consumers
  • non-UK consumers
  • don’t know

Question 11: Are there any features of the current VAT treatment of travel services that you believe materially affect prices, margins, or business decisions, but which are not well understood from published data?

2. The Tour Operators’ Margin Scheme

2.1. Overview

While the UK was a member of the EU the Tour Operators’ Margin scheme (TOMS) was a compulsory VAT accounting mechanism applied across the EU with essentially 2 aims[footnote 3]:

  1. To simplify application of EU VAT rules for travel services, particularly so that a tour operator avoids the need to register for VAT in each of the Member States where the transactions charged to the operator are performed;
  2. To ensure that the VAT revenue goes to the Member State in which final consumption of each individual component of the single supply takes place. VAT revenue on services enjoyed in the course of the journey, such as hotels, restaurants or transport, will go to the Member State in which the traveller receives or consumes the service, whereas VAT on tour operators’ margins goes to the Member State where the operator making the supply is established.

It continues to be a compulsory scheme in the UK where the UK’s conditions are met.

It is a derogation from the normal VAT rules and has been a feature of the EU-wide VAT regime since 1977, premised upon Articles 306 to 310 of the Principal VAT Directive 2006/112 (PVD, which refers to it as the Special scheme for travel agents). Since EU exit, the UK has retained its own scheme, based on the UK legislation cited below.

The UK first implemented the TOMS in 1988, currently through The Value Added Tax (Tour Operators) Order 1987 and Section 53(1) of the VAT Act 1994. Although amendments were made to the TOMS Order consequent upon the UK’s withdrawal from the EU, the scheme fundamentals remain unchanged and follow those first set out in by the EU in 1977. The EU directive remains relevant in interpreting the current UK legislation.

The supply of travel services to be enjoyed within the UK from suppliers established outside the UK are not within the scope of the TOMS legislation. The treatment of these supplies is discussed in part 4 of this document.

2.2. Principle

The principle of the EU TOMS is to establish the margin on travel services that are bought in and resold (without material alteration) by a tour operator. As stated in paragraph 2.1(ii) above, any VAT on the bought-in supply, which the tour operator cannot recover, remains taxed in the EU Member State where the supply takes place and the margin is taxed in the Member State where the tour operator is established.

The premise of the legislation dates back to a time when most tour operators sold travel services from bricks and mortar establishments, so the place of supply was obvious. With the advent of the internet many travel services are now sold on-line and the relevant place of establishment less so.

Where the bought-in supply is enjoyed outside the EU (Rest of the World) the margin is nevertheless within the scope of VAT, but taxable at the zero-rate.

Since the UK has left the EU, the margin on supplies taking place within the EU is also treated as ‘Rest of the World’, that is, also zero-rated; meaning there is no distinction in the UK between the EU and the rest of the world.

While UK was a member of the EU:

Place where TOMS supplies enjoyed Liability of Margin in the UK
The UK Standard Rate (20%)
The EU Standard Rate (20%)
Rest of the World Zero Rate (0%)

Now the UK is outside the EU the scenarios are simplified:

Place where TOMS supplies are enjoyed Liability of Margin in the UK
The UK Standard Rate (20%)
Rest of the World (including the EU) Zero Rate (0%)

In-house supplies (supplies made from the tour operator’s own resources) are excluded from the margin scheme (though necessarily included in the wider calculation as many supplies by tour operators contain elements of both in-house and bought-in supplies). Consequently, the value ascribed to the in-house supply within any package needs to be established and then excluded so that the margin on the bought-in supplies can be calculated.

The UK TOMS calculation prescribed in Notice 709/5 determines both the value of the in-house supplies and the margin on the TOMS supplies.

Question 12: Has the move from bricks and mortar establishments to on-line selling changed the dynamics of the TOMS from that initially envisaged?

Question 13: If the dynamics have changed, do respondents have any thoughts as to changes they’d like to see to the scheme to reflect that?

2.3. TOMS calculation

The UK TOMS calculation, as set out in VAT Notice 709/5, was originally designed in collaboration with the UK travel industry. The calculation is essentially an apportionment mechanism that seeks to establish in a single multi-step process the value for the in-house sales, the rest of the world sales and the margin scheme sales. The calculation also determines the value ascribed to the different rates of VAT for both in-house and bought-in supplies on the same cost-based principle.

The apportionment is made by dividing the sales income in proportion to the costs of all the elements of the package attributed to each element. It presumes a common mark-up of all costs.

The calculation was amended to include an option for Market Values for in-house supplies to be used following the Court of Justice of the European Union (CJEU) case of MyTravel (C-291/03). HMRC understand that this is not widely used by tour operators. However, where used, the effect is to remove the in-house supplies from the common mark-up based on costs.

The TOMS calculation thus represents a bespoke VAT accounting scheme for UK tour operators, many of which have used it for decades. On the other hand, to businesses that are not primarily tour operators, but which must use the TOMS as a result of buying in and selling on travel services, (even for a single event — for example a club awayday) the TOMS calculation is unfamiliar and can represent a challenge and significant burden.

2.4. Challenges to the UK TOMS

In 1996, following the CJEU decision in Commission — v-Germany (C-74/91) UK TOMS law was amended. Previously Article 10 of the TOMS Order provided for the margin to reflect the underlying domestic liability of the supplies being made. In particular, a portion of the margin could be zero-rated where zero-rated passenger transport was provided.

In 2007 the EU Commission raised concerns about aspects of the UK’s operation of the TOMS.

The issues initially raised concerns:

  • supplies to business customers for their own consumption and supplies of educational school trips
  • supplies to business customers for subsequent resale
  • the issue of the use of market values in respect of in-house supplies

HMRC amended the scheme accordingly.

The changes announced in April 2009 with effect from 1 January 2010 were to:

  • remove Article 3(3) of the TOMS Order, which provided for tour operators to opt out of the TOMS for supplies made to businesses for consumption (and not resupply) by those businesses and for educational school trips
  • remove the ability of tour operators to ‘opt in’ to using TOMS for B2B ‘wholesale’ supplies
  • include the use of Market Values in the TOMS calculation

Following the CJEU judgment (Commission -v- Spain C-189/11) which confirmed that Business to Business ‘wholesale’ supplies are subject to the TOMS, HMRC reinstated the opt-in. For technical reasons this was changed to an opt-out in 2024.

2.5. Concessions introduced since 1996

The change in the VAT liability of Margin scheme supplies from 1 January 1996 created potential for distortion of competition in favour of companies providing zero-rated in-house transport. This more commonly applies to larger tour operators, who are able to group themselves (for VAT purposes) with an airline; allowing them to supply passenger transport ‘in-house’ and thus avoid the imposition of VAT on the margin.

To help overcome this, 3 options to enable tour operators to minimize the impact of the liability change were publicised. Details were provided in Information Sheets 3/96, 4/96 and 1/97.

Information sheet 3/96 Airline charter option

The charter scheme permitted the supply of a charter flight by a tour operator to a customer to be treated as an in-house supply, thus retaining the zero-rating on the provision of transport post 1 January 1996. This was formally withdrawn from 1 April 2015.

Information Sheet 4/96 Agency Option

This simply sets out the necessary conditions for a tour operator to be treated as a disclosed agent to the supply of travel services and thus the TOMS does not apply. HMRC view the question of whether an agency scenario exists as a matter of contract and of fact and may review any purported agency agreement as part of its normal assurance procedures.

Information Sheet 1/94 ‘Transport Company Scheme’

On withdrawal of the zero-rate within the margin for transport services we permitted what is generally termed ‘the transport scheme’ the terms of which are set out in the Information Sheet 1/94. This scheme maintained the effect of having a zero-rated margin. We have concerns that this scheme provides for contrived business structures that we would not permit elsewhere in the VAT system and would welcome your view on this in the context of the wider review.

Revenue and Customs Brief 21/10 Hotel Billback

Similar to Information sheet 4/96 this explains how a tour operator can act as an agent for the purposes of arranging the supply of accommodation to a consumer. The Brief goes on to say that the arrangements outlined may also be applicable to other travel services. However, HMRC considers parts of the arrangements set out are concessionary in nature and not covered by the legislation and would welcome your view on this in the context of the wider review.

2.6. The government’s initial thoughts

The EU TOMS provided a mechanism for bringing standard rate VAT to account on margins relating to intra-EU travel where otherwise a tour operator would be required to register for VAT in every EU member State where they sent travellers to.

There was no similar technical reason to include domestic travel and travel to the rest of the world within the scheme. However, for practical reasons of consistency these were included in the scheme.

Many UK tour operators have been using the TOMS for many years and are familiar with the scheme, how it works and its related case-law. Their accounting systems are based upon the use of the TOMS. However, since the UK have left the EU, it is appropriate to reflect upon the continued relevance and need for the scheme.

Since supplies by tour operators are now either made within the UK or outside the UK, normal VAT accounting rules can be applied to such transactions. That is, now the UK is outside of the EU there is no technical reason for the TOMS to continue as the administrative burdens the scheme is designed to overcome are no longer present.

It may therefore be the case that withdrawal of the scheme and the related easements (paragraph 2.5) on their own may have minimal impact on the net amount of VAT accounted for on supplies of relevant travel services. Respondents are invited to challenge this with evidence where they feel there may be a material impact on the net VAT (either way) and to quantify that impact. Note any impact of other options as outlined in this document should be commented on separately.

Partial withdrawal of the TOMS

The government recognise that there may be a case for the TOMS to be withdrawn or retained only for certain supplies. This would involve prescribing services in and out of scope within legislation. Optionality is discussed in paragraph 2.7.

For example — withdrawal for:

  • supplies to be enjoyed outside the UK
  • supplies consisting of a single element (for example transport or accommodation)
  • supplies with elements which all have the same liability outside of the TOMS

For example — retention for:

  • supplies to be enjoyed both within the UK and outside it (for example a tour of the island of Ireland)
  • supplies consisting of multiple elements with different VAT liabilities

Section 3 of this call for evidence considers the treatment outside of the TOMS.

Question 14: How would full withdrawal of the TOMS and of the concessions (paragraph 2.5) affect your business or the sector?

Question 15: What effect would withdrawal have on the net VAT accounted for?

Question 16: What factors should the government take into consideration when looking at this option?

Question 17: What is your view on partial withdrawal of the TOMS for certain supplies? Which supplies do you think should be excluded and which included?

2.7. Modifications to the TOMS

As an alternative to potential withdrawal of the TOMS the government is keen to hear of any modification or simplifications to the present scheme that respondents believe would make it easier to use. Respondents should assume the concessions (paragraph 2.5) are withdrawn and comment on if they should be legislated for.

2 key areas that have been raised already are:

  • reintroduce the zero-rate element of the margin to reflect any transport services element that are zero-rated under the normal (non-TOMS) VAT rules
  • provide for the TOMS to be optional, particularly for B2B supplies

Question 18: What modifications or simplifications would you like to see to the TOMS as it currently stands and why?

Question 19: What do you see as being the pros and cons of making the TOMS optional?

Question 20: If the TOMS were optional what are respondents’ views on whether it should be on a transaction-by-transaction basis or on a whole business basis?

2.8. Non-VAT registered suppliers of bought-in supplies

This question has been highlighted in a number of VAT tribunal cases where the business operating the TOMS has bought-in supplies of accommodation and transport from persons not VAT registered or where the purchased supply is treated as exempt from VAT. The operation of the scheme deems the tour operator to sell the travel services as principal albeit in terms of the supply being the separate and distinct margin.

Without prejudice to Section 3, if the supply made by the tour operator (as principal) was outside of the scheme then under the normal VAT principles the whole supply would be taxable (at standard or zero-rate) as such a single supply.

The government is keen to hear evidence on whether TOMS is distortive of this VAT system principles. If so, the government would like to understand how this could be mitigated.

For example:

  • introduce a reverse charge to the TOMS for bought-in supplies from non-VAT registered person, or exempt supplies of land or property?
  • bar the use of the TOMS for such supplies?

Question 21: Do you think using TOMS for travel services bought from non-VAT-registered suppliers, or where the VAT treatment differs from that of the onward supply, distorts the VAT system? Please explain why.

Question 22: How do you think such a distortion (if any) could be addressed?

2.9. The TOMS calculation

The legislation prescribes provisional VAT accounting followed by an end-of-financial year calculation and adjustment. This annual adjustment is known as a ‘global’ calculation. HMRC is aware that some businesses have called for a more frequent ‘end of quarter’ calculation and adjustment.

An alternative basis for accounting (as per the CJEU Commission -v- Spain C-189/11) could be a TOMS margin calculation per VAT supply, with VAT due on the margin calculated in real time and declared on the current VAT return. HMRC has hitherto considered this impractical but would be open to views.

Question 23: Can you suggest amendments on the calculation mechanism? Please explain in detail how any suggestion might work.

2.10. Transition arrangements

In the event that the TOMS is withdrawn completely the Government recognises transition arrangements will be required, including allowing a period of time to enable businesses to alter their accounting procedures.

Providing an opt-out of the TOMS is less likely to require a transition period as the timing of any opt-out would likely be at the discretion of the business. However, there may be a need for transition arrangement.

Question 24: What factors do respondents consider they would require guidance on (with or without legislative backing) to facilitate a transition out of the TOMS in either scenario?

Question 25: What length of time would respondents view as being reasonable to transition out of the TOMS in the case of withdrawal or partial withdrawal. What factors lead to this view?

2.11. Call for Evidence

In addition to questions 14 to 25 you are invited to give general views or suggestions on:

  • whether the TOMS continues to serve a purpose, whether it should be retained and why
  • whether it should be retained for only certain supplies
  • whether the TOMS should be optional and if so whether any such option would be for the whole business, or selected transactions could be opted out and others remain within a scheme
  • simplifications, easements, distortions
  • any other thoughts on the TOMS

3. Treatment of supplies outside of the TOMS

3.1. Overview

In Commission v Spain (C-189/11), the CJEU confirmed that business-to-business (B2B) supplies fall within the TOMS. Despite that judgment, HMRC continued to allow wholesale B2B supplies to be made outside the TOMS, while allowing such suppliers to opt into the scheme.

Revenue and Customs Brief 5/24 explains the current policy. Suppliers of wholesale travel services to businesses that will resupply those services to the final consumer may opt out of the TOMS and account for VAT under the normal rules.

The issues considered in this chapter would also be relevant if the ability to opt out of the TOMS were extended to retail supplies for the customer’s own consumption, or if the TOMS were withdrawn entirely (see section 2).

The government recognises that the current VAT treatment of travel services supplied outside the TOMS has flaws, as set out below, and welcomes respondents’ views on how this might be addressed.

3.2. Designated travel service

Under the TOMS the supply by a tour operator is treated as a single supply regardless of the contractual terms. That is, if a travel service consists of, for example, transport and accommodation it is always treated as a single supply of a travel service.

This designated travel service is deemed to be supplied where the supplier belongs. Thus, a TOMS supply made from a UK-based establishment of a tour operator is deemed to be a single supply of travel services made within the UK.

The value of the supply of travel services is in essence the tour operator’s margin. VAT on the bought-in supply is not deductible as input tax by the tour operator and thus remains accounted for by the supplier of those services (for example a hotel) to the tour operator. The tour operator’s margin is analogous to a commission for the sale of the travel services.

Where the travel services are used and enjoyed outside of the UK the margin is zero-rated and generally any tax due on the underlying supply remains taxed where consumed. Equally the margin on travel services enjoyed within the UK is taxable at standard rate and the underlying supply is taxed within the UK.

Where the TOMS does not apply, we are seeking to achieve the same result of UK consumed travel services being taxed at the appropriate rate in the UK and travel services consumed outside the UK not subject to UK VAT.

The treatment of supplies consumed outside the UK could be achieved through zero-rating or by making the place of supply outside the UK.

3.3. Place of supply

Outwith the margin scheme, the normal VAT rules would apply to the service(s) provided including the place of supply. Currently the place of the most common components of a service being:

Service Place of supply
Transport Where it takes place
Accommodation Where located
Hire of means of transport Where used and enjoyed

However, unlike the TOMS there is no explicit provision for the place of supply of a single supply of a package of 2 or more travel services. HMRC’s current policy is that packaged travel services is a single composite supply distinct from its components and thus follows the general place of supply rules. For the purposes of this paper, we will use the term ‘packaged’ supply to describe such services.

Customer Place of supply
Individual Where tour operator is established
Business Where customer is established

The government believes this treatment of a packaged supply creates a distortion in the VAT system.

For example; a packaged supply of travel services to be enjoyed in the UK:

  • a UK wholesaler (UKW) of travel services purchases hotel rooms from a UK hotelier and packages these with transport services purchased from a different supplier.
  • UKW can usually reclaim VAT on the travel services they bought to create the package
  • UKW sells the packaged supply to an overseas tour operator (OTO) outside of the TOMS then the place of supply is where the OTO is established under the place of supply general rule.
  • if OTO then sells that packaged supply to the final customer (C) the B2C general rule makes the place of supply where OTO is established.
  • so, no net UK VAT is accounted for even though the travel services are consumed within the UK. The Government will be legislating to correct this distortion.

HMRC suggests they should be clear on what the indicators are for a travel service to be considered a packaged supply of travel services.

HMRC currently considers the following supplies to be the primary TOMS supplies

  • accommodation
  • passenger transport
  • hire of a means of transport
  • trips or excursions
  • services of tour guides
  • use of special lounges at airports

For example, a supply that consists of 2 or more of the above services which are combined with each other might be considered a packaged supply.

Question 26: Respondents are invited to comment on this distortion of the tax in respect of packaged supplies and provide their views on how this issue might be legislated for.

Question 27: Respondents are invited to comment on the definition of a ‘packaged supply’ of travel service and how it should be defined.

Options for the VAT treatment of overseas established tour operators is covered in section 4 of this call for evidence.

3.4. Single or Multiple supply

Notwithstanding the position set out in paragraph 3.3 that HMRC’s current policy is that a packaged travel supply is a single composite supply separate and distinct from its components we invite thoughts on the approach going forward.

In the absence of the Tour Operators Margin Scheme, supplies made by tour operators would be subject to the normal VAT rules. In particular, it would be necessary to determine whether what is supplied to the customer constitutes a single supply or multiple supplies, as this may determine the applicable VAT treatment.

Under general VAT principles, each supply of goods or services is ordinarily treated as distinct and independent. However, where a transaction comprises several elements or components supplied for a single consideration, such as transport, accommodation and other services for a single price, it is necessary to consider whether, viewed objectively, those elements should be characterised as a single supply or as multiple supplies. This assessment depends on a detailed analysis accounting for the economic reality of the transaction and the perspective of the consumer.

The general principles of single or multiple supplies are well known in respect of most goods and services but not in relation to travel services, where, notwithstanding the wholesale treatment, the TOMS has hitherto prevailed. HMRC are aware that this could be a complex area and are keen to achieve a common understanding and so avoid the need to resolve disputes through litigation.

A single supply may arise where there is a principal element and other elements are ancillary, or where the elements together form a single indivisible supply. In these cases, a single VAT treatment applies to the whole supply.

A multiple supply arises where the elements are independent and capable of being supplied separately. In such cases, each element is treated individually for VAT purposes, and different VAT liabilities may apply.

The application of the normal single and multiple supply rules could lead to different VAT outcomes for similar packaged travel products, depending on their precise structure. In particular:

  • different components within a package could be subject to different VAT liabilities if treated as multiple supplies
  • a single VAT liability could apply to the entire package where it is treated as a single supply

Stakeholders are invited to provide evidence on how these principles would apply in practice to tour operators, and whether significant complexity or uncertainty would arise in the absence of a specific scheme such as TOMS.

Under the TOMS the supply of travel services is treated as a single supply with separate characterisation from the component elements even if the supply comprises a single component (for example transport).

For example, a TOMS margin on a supply of passenger transport enjoyed in the UK is subject to VAT at the standard rate, even if that passenger transport would qualify for zero-rating outside of the TOMS under the normal VAT rules. The supply to the tour operator remaining de facto taxed and accounted for by the supplier at the normal rate for the supply.

Outside of the TOMS where there is a single supply of accommodation, or of transport the rules are simple, the liability follows the normal rules for that supply — for accommodation, where the land is, or for transport and other typical supplies, where they take place. However, the question arises over how to treat a packaged supply of services which individually have different liabilities. HMRC consider there are 3 possible views of this.

  1. There are multiple supplies of the individual components for a single consideration.
  2. There is a single supply of a principal component and ancillary components.
  3. There is a single complex supply where the components lose their individual identities.

HMRC’s current policy in relation to wholesale (packaged) supplies is that the resulting supply is a single complex supply where the components lose their individual identities (point 3.3 above).

The government is keen to hear views on this single or multiple supply question bearing in mind case law and the aim for simplicity, certainty and the avoidance of litigation.

The government makes the following observations to prompt discussion:

  1. A multiple supply for single consideration would need to be apportioned in some form. That could be in the form of a designated formula similar to that currently provided for under the TOMS, or it could be for the business to agree on a case-by-case basis with HMRC. The latter risks potential inconsistency, with decisions affected by the tour operator’s knowledge of the VAT rules outside of the TOMS and access to professional advice.
  2. A principal supply analysis was looked at in the First-tier Tribunal case of Travel Incentives Meetings Exhibitions Ltd (TC/2013/07963). Here it was found that the transport was ancillary to the predominant supply of a conference. However, could the converse also be the case where (say) a sightseeing coach tour (transport) was the predominant supply with accommodation being ‘a necessary ancillary’ service?
  3. If a single supply, the whole travel service would be a new single complex supply of ‘a package’ where the components lose their individual identity.
  4. Single component supplies would retain their normal identity.
  5. Respondents are invited to comment on these observations and whether there are other potential analyses to be made.

Question 28: Do respondents consider that there should be a single rule that is mandatory for all travel packages made outside of the TOMS; if so, what form should that take?

Question 29: If not a mandatory mechanism, then how do respondents consider the question should be approached?

Respondents should bear in mind when answering the overarching objective of simplification, fairness and the avoidance of litigation.

3.5. Vouchers and tickets

HMRC is also aware that some tour operators claim to provide ‘vouchers’ or ‘tickets’ to evidence the supply they make. The general principles for vouchers do not apply where they are subsumed into such a single complex supply or where they are tickets.

4. Overseas tour operators

4.1. Consultation overview

This section is about overseas tour operators that make supplies of travel services to be used and enjoyed within the UK. By overseas tour operators HMRC are referring to tour operators that are established outside of the UK for the purposes of making supplies of travel services to be enjoyed within the UK. These can be supplies to overseas visitors to the UK, or to UK consumers buying a ‘staycation’.

The treatment of overseas tour operators supplying travel services to be consumed within the EU was discussed at the 101st meeting of the EU VAT Committee on 20 October 2014. The Committee issued a guideline:

  • that transactions carried out by a travel agent acting in his own name for taxable or non-taxable persons, shall only be covered by that special scheme if the travel agent has established his business within the European Union or has a fixed establishment there from which he has carried out the supply of the services in question

This meant that on a technical level any supplies made by such tour operators established outside of the EU into the EU were governed by the normal place of supply rules (notwithstanding part 3 of this call for evidence) which could mean such businesses were required to register for VAT as Non-Established Taxable Persons in every EU Member State where supplies were deemed to be made under those rules.

The UK, as did many Member States, adopted a pragmatic approach that effectively treated such tour operators as de-facto operating the TOMS in their country of establishment by blocking overseas repayment claims of any UK VAT incurred on travel services that were intended for resupply to travellers. This effectively left the place of supply of the tour operators’ margins where they were established and the underlying supplies where consumed.

4.2. Blocked repayment claims

The application of the block to overseas repayment claims is not without its difficulties, not least because overseas businesses that are not tour operators are entitled to be repaid for normal business travel expenses such as hotel accommodation. It is not always obvious whether travel services have been purchased for consumption by the business or for onward supply to a consumer of the travel service.

As discussed in section 3 where an overseas tour operator purchases travel services from a UK wholesaler as a packaged service VAT will often not be due, thus there is no repayment claim that would be blocked.

4.3. Objectives

The government’s view is that where travel services are used and enjoyed within the UK then UK VAT should be accounted for on those supplies at the normal rate of VAT applicable. This should be the case whether the traveller is an overseas person, or not.

The government believes that this can be achieved through

  • a combination of ensuring VAT is charged on wholesale supplies (see section 3) and the subsequent blocking of overseas repayment claims, that is, the overseas tour operator cannot reclaim the UK VAT they are charged, while business consumers can continue to claim as normal, or
  • requiring overseas tour operators to account for VAT in the UK (paragraph 4.5)

4.4. Overseas ‘margin’

As mentioned above the UK currently treats the overseas tour operator as de-facto operating the TOMS in their country of establishment. The government can see that there is a case to be made that where the customer is themselves based outside the UK that is an acceptable outcome. However, the case for such a ‘margin’ to not be taxed in the UK where the customer is UK based is much less convincing.

4.5. VAT Registration

An alternative option would be to require all overseas tour operators making supplies to be consumed in the UK register for VAT in the UK and account for VAT.

The government is aware that there are some UK operators that are concerned about the requirement of VAT registration of overseas tour operators, chiefly because of the risk that the EU might adopt this same approach and UK tour operators may be required to VAT register in every EU Member State where their travel services are enjoyed. HMRC understands that the EU is already considering this option and that at least one Member State has unilaterally adopted this requirement already.

Question 30: Do respondents have a view on the treatment of overseas tour operators and the objective to ensure that the right amount of VAT is accounted for in the UK?

Question 31: Do respondents have any views on the current working of the repayment claim block and whether they have any suggestions for improvement?

5. Summary of call for evidence questions

Question 1: What is the primary activity of your business (Optional: Standard Industrial Classification (SIC) Code, if known)?

Question 2: Approximately what proportion of your UK turnover relates to services currently accounted for under the Tour Operators’ Margin Scheme (that is excluding in-house supplies)?

Question 3: Approximately what proportion of your Margin scheme supplies are consumed in the UK and thus liable for VAT at the standard rate?

Question 4: Do you use the Wholesale opt-out (paragraph 3.2 of Notice 709/5) from the TOMS?

If so:

  • approximately what proportion of your travel supplies have you opted to treat as wholesale?
  • approximately what proportion are supplied to tour operators based outside the UK for consumption in the UK?
  • what were the approximate values of these supplies?

Question 5: Broadly, how would you describe the mix of customers for whom you apply the TOMS?

  • mainly consumers (B2C)
  • mainly businesses who sell on the supplies to consumers (B2B)
  • mainly businesses who consume your supplies themselves (B2BC.Paras 3.1 and 3.3 of VAT Notice 709/5 refers)
  • mix of the above

Question 6: Which of the following best describes the VAT position of your business?

  • VAT registered as turnover always above VAT threshold
  • VAT registered as turnover around threshold
  • VAT registered voluntarily meaning turnover below threshold
  • VAT not registered as turnover below threshold

Question 7: Approximately what proportion of services that your business buy in from suppliers (such as accommodation, transport, or activities) are standard-rated?

Question 8: Over the last 12 months, when assembling travel packages, how often did your business buy in services (such as accommodation, transport, or activities) from:

  • UK suppliers that were not VAT registered?
  • supplies of accommodation that were exempt from VAT?
  • and what was the approximate value of these supplies?

Question 9: Does your business sell travel services to, or buy travel services from, tour operators established outside the UK?

Question 10: Do you supply travel services to be consumed within the UK from outside the UK? If so, what is the approximate value of sales made to:

  • UK Consumers
  • non-UK consumers
  • don’t know

Question 11: Are there any features of the current VAT treatment of travel services that you believe materially affect prices, margins, or business decisions, but which are not well understood from published data?

Question 12: Has the move from bricks and mortar establishments to on-line selling changed the dynamics of the TOMS from that initially envisaged?

Question 13: If the dynamics have changed, do respondents have any thoughts as to changes they’d like to see to the scheme to reflect that?

Question 14: How would withdrawal of the TOMS and of the easements (paragraph 2.5) affect your business or the sector?

Question 15: What effect would withdrawal have on the net VAT accounted for?

Question 16: What factors should the government take into consideration when looking at this option?

Question 17: What is your view on partial withdrawal of the TOMS for certain supplies? Which supplies do you think should be excluded and which included?

Question 18: What modifications or simplifications would you like to see to the TOMS as it currently stands?

Question 19: What do you see as being the pros and cons of making the TOMS optional?

Question 20: If the TOMS is optional what are respondents’ views on whether it should be on a transaction-by-transaction a whole business basis?

Question 21: Do you think the use of the TOMS for travel services bought in from non-VAT registered suppliers, or where the VAT liability is different from what is supplied on is distortive of the VAT system? Please explain your thinking.

Question 22: How do you think such a distortion (if any) could be addressed?

Question 23: Can you suggest amendments on the calculation mechanism? Please explain in detail how any suggestion might work.

Question 24: What factors do respondents consider they would require guidance on (with or without legislative backing) to facilitate a transition out of the TOMS in either scenario?

Question 25: What length of time would respondents view as being reasonable to transition out of the TOMS in the case of withdrawal or partial withdrawal. What factors lead to this view?

Question 26: Respondents are invited to comment on the potential distortion of the tax in respect of packaged supplies and provide their thoughts on how this issue might be tackled.

Question 27: Respondents are invited to comment on the definition of a ‘packaged supply’ of travel service and how it should be treated.

Question 28: Do respondents consider that there should be a single rule that is mandatory for all travel packages made outside of the TOMS; if so, what form should that take?

Question 29: If not a mandatory mechanism, then how do respondents consider the question should be approached?

Question 30: Do respondents have a view on the treatment of overseas tour operators and the objective to ensure that the right amount of VAT is accounted for in the UK?

Question 31: Do respondents have any views on the current working of the repayment claim block and whether they have any suggestions for improvements?

6. The call for evidence process

Tax Policy Making principles

Tax Policy Making

The following principles underpin the government’s approach to tax policy making:

  • predictability and stability: the single major fiscal event cycle will provide a predictable and stable framework for the delivery of tax changes

  • a smart and agile approach to consultation: the government will engage stakeholders fully and flexibly when developing tax policy, prioritising dynamic and frequent engagement with tax professionals at both ministerial and official levels — where formal consultation is required, it will be targeted and precise, only seeking information that is genuinely needed, and will last a proportionate amount of time

  • transparency: the government is committed to transparency, and will make sure that its rationales for tax policy changes and assessments of policy impacts are clear

These principles will enable the government to deliver change quickly, whilst making sure that the impacts of tax policy changes are fully understood.

How to respond

Responses should be sent by 31 January 2027 by email to: cfetoms@hmrc.gov.uk.

Telephone enquiries 03000 585559 (from a text phone prefix this number with 18001).

A summary of the questions in this consultation is included at chapter 5. Please do not send consultation responses to the Consultation Coordinator.

Paper copies of this document in Welsh may be obtained free of charge from the above address.

When responding please say if you are a business, individual or representative body. In the case of representative bodies please provide information on the number and nature of people you represent.

Confidentiality

HMRC is committed to protecting the privacy and security of your personal information. This privacy notice describes how we collect and use personal information about you in accordance with data protection law, including the UK General Data Protection Regulation (UK GDPR) and the Data Protection Act (DPA) 2018.

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes.

These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 2018, UK General Data Protection Regulation (UK GDPR) and the Environmental Information Regulations 2004.

If you want the information that you provide to be treated as confidential, please be aware that, under the Freedom of Information Act 2000, there is a statutory Code of Practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Revenue and Customs.

Consultation Privacy Notice

This notice sets out how we will use your personal data, and your rights. It is made under Articles 13 and 14 of the UK General Data Protection Regulation.

Your data

We will process the following personal data: Name Email address Postal address Phone number Job title

Purpose

The purpose for which we are processing your personal data is: ‘Review of the VAT treatment of travel services including the Tour Operators’ Margin Scheme’

The legal basis for processing your personal data is that the processing is necessary for the exercise of a function of a government department.

Recipients

Your personal data may be shared by us with (HM Treasury).

Retention

Your personal data will be kept by us for 6 years and will then be deleted.

Your rights

You have the right to request information about how your personal data are processed, and to request a copy of that personal data.

You have the right to request that any inaccuracies in your personal data are rectified without delay.

You have the right to request that any incomplete personal data are completed, including by means of a supplementary statement.

You have the right to request that your personal data are erased if there is no longer a justification for them to be processed.

You have the right in certain circumstances (for example, where accuracy is contested) to request that the processing of your personal data is restricted.

Complaints

If you consider that your personal data has been misused or mishandled, you may make a complaint to the Information Commissioner, who is an independent regulator. The Information Commissioner can be contacted at:

Information Commissioner’s Office
Wycliffe House
Water Lane
Wilmslow
Cheshire
SK9 5AF

0303 123 1113 casework@ico.org.uk

Any complaint to the Information Commissioner is without prejudice to your right to seek redress through the courts.

Contact details

The data controller for your personal data is HM Revenue and Customs. The contact details for the data controller are:

HMRC
100 Parliament Street
Westminster
London
SW1A 2BQ

The contact details for HMRC’s Data Protection Officer are:

The Data Protection Officer
HMRC
14 Westfield Avenue
Stratford
London
E20 1HZ

advice.dpa@hmrc.gov.uk

Consultation principles

This call for evidence is being run in accordance with the government’s Consultation Principles.

The Consultation Principles are available on the Cabinet Office website: Consultation Principles Guidance

If you have any comments or complaints about the consultation process, please contact the Consultation Coordinator.

Please do not send responses to the consultation to this link.

Annex A: Relevant (current) government legislation

Relevant (current) legislation

Value Added Tax Act 1994, section 53 and Schedule 8, Group 8, Item 12.

Value Added Tax (Tour Operators’ Margin Scheme) Order 1987, SI 1987/1806

Value Added Tax Regulations 1995, Regulation 190(1)(b).

  1. (https://draft-origin.publishing.service.gov.uk/government/calls-for-evidence/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme-call-for-evidence/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme?preview=9279384#_ftnref1) Value added tax: routes to simplification paragraphs 7.10 to 7.24 ↩

  2. (https://draft-origin.publishing.service.gov.uk/government/calls-for-evidence/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme-call-for-evidence/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme?preview=9279384#_ftnref2) OTS evaluation update on its Value added tax report paragraph 1.36 ↩

  3. (https://draft-origin.publishing.service.gov.uk/government/calls-for-evidence/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme-call-for-evidence/review-of-the-vat-treatment-of-travel-services-including-the-tour-operators-margin-scheme?preview=9279384#_ftnref3) TAXUD/2016/AO-05 ↩

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