UK TOMS vs EU TOMS: What actually changes for Operators

Updated November 2025 | By Antravia Advisory UK

The Tour Operators Margin Scheme (TOMS) remains one of the most complex areas of VAT for the travel sector. It was created to simplify cross-border VAT accounting, but after Brexit, the U.K. and EU systems began to diverge. The result is that many operators now run two parallel regimes, one under U.K. TOMS and one under an EU margin scheme, often with overlapping supplies and conflicting reporting.

This guide explains how TOMS works, what changed after Brexit, and how travel companies can manage compliance when selling across the U.K. and EU.

1. What TOMS is and why it exists

TOMS applies when a travel business buys in and re-sells travel services, such as hotels, transport, excursions, or guides, as a package in its own name. Instead of reclaiming input VAT and charging VAT on each element, the company accounts for VAT only on its margin (the difference between the selling price and direct costs).

The scheme prevents the need for operators to register in every country where their services are consumed and ensures a consistent VAT base on travel packages sold to final consumers.

In both the U.K. and EU, TOMS only applies to B2C sales. Pure agency models, or B2B supplies to other taxable businesses, fall outside its scope.

2. The Post-Brexit Split

Until 31 December 2020, U.K. travel businesses operated under a single EU-wide TOMS framework. After Brexit, the U.K. adopted its own retained version of the scheme, while the EU continued under the VAT Directive (Council Directive 2006/112/EC, Articles 306–310).

Key differences in 2025

The legal basis for the two regimes now differs. The U.K. version of TOMS is governed by Schedule 9A of the VAT Regulations 1995, while the EU scheme continues to operate under Articles 306–310 of the EU VAT Directive (2006/112/EC).

The scope of each scheme also diverges. U.K. TOMS applies to travel services enjoyed anywhere in the world, provided they are sold by a U.K.-established business. In contrast, EU TOMS only applies to services enjoyed within the European Union when sold by an EU-established business.

For cross-border sales, the U.K. treats supplies outside the U.K. as zero-rated exports of services. Under EU TOMS, supplies outside the EU are considered outside the scope of EU VAT altogether.

When it comes to input VAT recovery, the rules remain similar but not identical. In the U.K., no input VAT can be reclaimed on direct costs included within the margin, though partial recovery is possible on overheads for mixed businesses. Across the EU, the same principle applies, but domestic interpretation varies — several Member States allow proportional recovery where the operator has both TOMS and non-TOMS income.

For business-to-business (B2B) transactions, the U.K. allows operators to opt out of TOMS and apply normal VAT rules if this is clearly disclosed and evidenced. In the EU, B2B supplies are automatically excluded from TOMS and follow the standard place of supply rules.

In terms of VAT return disclosures, U.K. operators declare only the output VAT due on their margin (typically in Box 1 of the VAT return). In the EU, reporting formats differ between Member States, but the margin is always declared at the local standard rate of VAT.

Finally, refunds and credit notes are treated slightly differently. In the U.K., issuing a credit note reduces the declared margin and therefore the VAT due. Within the EU, treatment varies so some tax authorities allow the same approach, while others require separate credit accounting or manual adjustments in the next return.

3. When you may need two TOMS Registrations

A U.K. company with an EU branch or subsidiary often needs both U.K. and EU VAT registrations:

• U.K. TOMS applies to packages sold through the U.K. entity.

• EU TOMS applies to packages sold through the EU establishment to EU consumers.

Example:
A London-based DMC selling Italian hotel packages to German consumers must use EU TOMS for the EU establishment, while the U.K. parent remains under U.K. TOMS for domestic sales.

Failure to identify where the establishment of the supplier is located can lead to under-declared VAT in both jurisdictions.

4. Margin Calculation in Practice

Both regimes calculate the margin as:

Selling Price (inc. VAT) – Direct Costs (inc. VAT)

VAT is then due on that margin at the local standard rate (20% in the U.K., varying across the EU).

Example:
A U.K. tour operator sells a Paris package for £2,000. The cost of hotel and transfers purchased from EU suppliers totals £1,600 (inc. VAT).
Margin = £400.
VAT due = £400 × 20% = £80.

Under EU TOMS, if the same package were sold by a French operator, the margin would be taxed in France at 20%, with costs including French and cross-border services.

5. The “Destination Gap” Problem

Post-Brexit, a U.K. operator’s margin on EU holidays is zero-rated, but EU Member States now view those sales as outside scope, creating mismatched treatments when EU consumers buy U.K. packages.
The result is:

• Inconsistent VAT disclosure across borders.

• Difficulty in comparing prices or reclaiming input tax on overheads.

• Higher audit scrutiny of cross-border tour operator chains.

Many U.K. businesses therefore restructure, e.g., using an Irish or Dutch entity, to maintain alignment with EU TOMS for continental operations.

6. Record Keeping and Audit Expectations

Both HMRC and EU tax authorities expect:

• Clear separation between direct costs and overheads.

• Documentation showing where the traveller’s services are enjoyed.

• Evidence of agency vs principal status.

• Margin worksheets supporting the declared figures.

Under Making Tax Digital (MTD) rules, U.K. operators must keep digital records of TOMS calculations.
Several EU states (e.g., Spain’s SII, Portugal’s SAF-T) require similar digital traceability.

7. Common Mistakes

• Treating B2B packages as TOMS when the customer is a VAT-registered agent.

• Using TOMS on domestic hotel sales within a single Member State.

• Failing to segregate EU and non-EU sales margins.

• Missing zero-rating for sales outside the U.K. under U.K. TOMS.

• Using gross revenue rather than VAT-inclusive values in margin formulae.

8. Practical Steps for Compliance

1. Identify your place of establishment and where sales are consumed.

2. Segregate U.K., EU, and non-EU transactions.

3. Prepare a TOMS margin worksheet for each period.

4. Review zero-rating and B2B exceptions.

5. Reconcile TOMS outputs to management accounts and forecasts.

If you sell across both regions, consider dual registrations or fiscal representation in an EU Member State.

9. The Future of TOMS

There are ongoing calls in Brussels and London to reform the scheme:

• The EU Commission continues to assess margin taxation under the VAT in the Digital Age (ViDA) initiative.

• The U.K. Treasury’s 2024 consultation noted industry concerns about competitiveness and is reviewing partial recovery options.

Change is expected, but not before 2026.

Next steps:
If you’re unsure whether your business falls under U.K. or EU TOMS, start with a short VAT Health Check. Antravia can map your supply chain, review invoices, and confirm which regime applies.

See also blog - Digital Record-Keeping and Making Tax Digital (MTD) for Travel Agents and Hotels

References

• EU VAT Directive (2006/112/EC), Articles 306–310

• HMRC VAT Notice 709/5 (September 2024 update)

• UK Finance Act 2021, Schedule 9A

• European Commission: Explanatory Notes on TOMS (2023)

• OECD Tourism Committee, VAT treatment of travel services (2022)

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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