United Kingdom VAT & TOMS for Travel and Hospitality - Expert help from Antravia

Understand how VAT and TOMS apply to U.K. travel agents, tour operators, and hotels. Learn margin rules, agency vs principal treatment, and post-Brexit compliance from Antravia Advisory.

Antravia helps U.K. travel companies understand how VAT, TOMS, and agency structures affect pricing, margin, and compliance. Whether you sell U.K. packages or global itineraries, we bring clarity to complex rules.

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U.K. VAT & TOMS -
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Employee travel, events, exhibitions, and supplier invoices across the UK/EU

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U.K. VAT & TOMS: FAQs, Articles & Expert Insights

UKVAT.tax – Frequently Asked Questions

What is the Tour Operators Margin Scheme (TOMS)?

TOMS is a special UK VAT regime for travel businesses that buy in and resell travel packages (e.g., holidays including third-party accommodation, transport, or activities) as a principal or undisclosed agent. Rather than applying VAT to the full selling price, it's charged only on the "margin", the difference between the selling price and the direct costs of acquired services. This simplifies compliance but requires meticulous record-keeping. For example, if you sell a £1,000 package with £700 in direct costs, VAT applies only to the £300 margin.

Reference: HMRC VAT Notice 709/5 (updated April 2024, no changes in 2025).GOV.UK

Does TOMS still apply after Brexit?

Yes, the UK operates its own independent TOMS under Schedule 9A of the Value Added Tax Act 1994 (as amended by the VAT Regulations 1995). It applies to travel services enjoyed anywhere in the world if sold by a UK-established business. Post-Brexit, UK operators can no longer use the EU's TOMS scheme, and services to EU customers are treated as exports (zero-rated if B2C). This creates some divergence, such as different zero-rating rules for non-EU destinations.

Reference: HMRC VAT Notice 709/5, Section 2.GOV.UK

Can a travel agent opt out of TOMS?

Yes, but only in specific cases. For B2B wholesale supplies disclosed as agency (e.g., via clear contracts stating you're acting on behalf of the principal), you can opt for standard VAT treatment under the reverse charge mechanism. Evidence like agency agreements and invoices is crucial. However, if you're acting as principal or undisclosed agent, or if supplies are to final consumers (even businesses for non-business use, like employee incentives), TOMS is mandatory. Incidental non-TOMS supplies (<1% of turnover) may be exempt. Always seek HMRC clearance for opt-outs to avoid audits.

Reference: HMRC VAT Notice 709/5, Section 3.2 (updated 2024 for B2B clarity).GOV.UK

Can I recover input VAT on my travel costs?

No for direct costs included in the TOMS margin, as these are blocked to prevent double taxation. However, partial recovery is possible on overheads (e.g., office rent, marketing) if your business has mixed TOMS and non-TOMS activities. Use HMRC's partial exemption methods to apportion recovery based on taxable/non-taxable turnover. Tip: Track overheads separately to maximize claims, and software like Xero or Sage can automate this.

Reference: HMRC VAT Notice 709/5, Section 7.GOV.UK

What VAT rate applies to my margin?

The standard UK VAT rate of 20% (unchanged in 2025) applies to margins on services enjoyed in the UK. Margins on services enjoyed outside the UK qualify as zero-rated exports of services, provided the customer is not UK-based. For mixed packages, apportion based on where services are consumed. Note: A temporary 5% reduced rate applies to certain hospitality supplies (e.g., food/drink in hotels) until further notice, but this doesn't alter TOMS margins directly.

Reference: HMRC VAT Notice 709/5, Section 5; VAT rates confirmed via HMRC.GOV.UK VAT Rates

How should I show TOMS on my VAT return?

Declare output VAT on the margin in Box 1 (using provisional quarterly figures, adjusted annually). Importantly, include the total VAT-exclusive value of all TOMS supplies (i.e., full selling prices, not just margins) in Box 6, as this reflects the overall value for statistical purposes. No VAT is due on the full turnover, so Box 1 won't match Box 6. Use Box 4 for any reclaimable input VAT on overheads. Annual adjustments must be filed by the return covering your accounting year-end. Pro tip: HMRC's TOMS calculator tool can help with provisional estimates.

Reference: HMRC VAT Notice 709/5, Section 8.GOV.UK

Do hotels and accommodation providers fall under TOMS?

Only if they act as principals packaging and reselling third-party services (e.g., a hotel bundling rooms with tours or flights). Pure accommodation supplies (e.g., direct room rentals) follow standard VAT rules: 20% on UK stays, zero-rated for non-UK. The key test is whether you're buying in and reselling margin-making elements.

Reference: HMRC VAT Notice 709/5, Section 1.3.GOV.UK

What records will HMRC expect in a TOMS audit?

Comprehensive documentation, including: itemized cost breakdowns (with market value evidence for in-house supplies), supplier contracts and invoices, proof of service enjoyment locations (e.g., itineraries), and clear agency vs. principal status indicators. Retain records for 6 years, and perform annual margin reconciliations. Audits often focus on under-declared margins or incorrect zero-rating, and there digital tools that can streamline compliance.

Reference: HMRC VAT Notice 709/5, Section 9.GOV.UK

Can I claim VAT refunds from the EU?

Yes, UK businesses (now treated as non-EU) can reclaim VAT on EU business expenses via the 13th Directive procedure. Submit claims directly to each Member State's tax authority (e.g., via their online portals), with supporting invoices and proof of payment. Deadlines are typically 6-9 months from quarter-end, and reciprocity applies, and no central EU portal post-Brexit. Expect processing times of 4-6 months; use agents like VAT Reclaim for efficiency. See also our dedicated page on EU VAT Reclaim.

Reference: HMRC VAT Notice 706 (8th/13th Directives).GOV.UK

Where can I learn more?

For in-depth UK TOMS guidance, agent vs. principal analysis, and cross-border compliance, visit VAT.travel. Official resources: HMRC's full Notice 709/5 and webinars. Antravia offers tailored audits to ensure your setup is audit-proof.

What is TOMS? History, Law and VAT Rules for UK Travel Businesses

The Tour Operators’ Margin Scheme began in EU law in 1977 and still applies in the U.K. Learn the legal history, legislation and how TOMS affects UK tour operators, agents and DMCs.. Link

VAT mistakes UK travel businesses make long before HMRC steps in

A practical guide to the VAT mistakes UK travel businesses make before HMRC intervenes, covering reverse charge, TOMS, imports, systems errors and VAT recovery risks. Link

Can UK Businesses Recover EU VAT? | Antravia Guide

UK companies can still reclaim EU VAT after Brexit, but claims now follow the Thirteenth Directive. Learn eligibility rules, deadlines, reciprocity and what costs are recoverable. Link
Also see our dedicated VAT.Claims page here

Travel Agent vs Tour Operator in the U.K. | Financial & VAT Differences

Understand how U.K. travel businesses are classified for VAT and accounting. Learn when an agent becomes a tour operator under TOMS and how it affects profit and compliance. Link

VAT for UK Travel Agents and Tour Operators: What you need to know about TOMS

Understand how VAT and the Tour Operators’ Margin Scheme (TOMS) affect UK travel agents. Learn how to stay compliant and protect your margins. Link

Inside the Hotelbeds VAT Case: Lessons for Every UK Travel Business | Antravia UK

An inside look at the Hotelbeds VAT case and what it teaches about invoice control, TOMS, and VAT recovery for UK travel businesses. Link

HMRC Audit Preparation for Travel Businesses | 2026 VAT & TOMS Guide

Prepare for HMRC VAT and TOMS audits in 2026. Antravia’s expert guide helps UK travel businesses avoid penalties, manage compliance, and stay audit-ready. Link

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Disclaimer:
Content published by Antravia is provided for informational purposes only and reflects research, industry analysis, and our professional perspective. It does not constitute legal, tax, or accounting advice. Regulations vary by jurisdiction, and individual circumstances differ. Readers should seek advice from a qualified professional before making decisions that could affect their business.
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