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TOMS advice for hotels and operators packaging bought-in travel services.

The Tour Operators Margin Scheme is not just for dedicated tour operators. HMRC's guidance confirms it applies to any business that buys in accommodation, transport or other travel services from third parties and sells them as a package to travellers, even where travel is not the operator's main activity. Hotels and guest houses that bundle third-party transfers, tours or experiences with a room stay can fall inside TOMS without realising it. Under TOMS, VAT is charged only on the margin (the difference between the price charged to the customer and the cost of the bought-in elements), and input VAT on those bought-in services cannot be recovered. Both outcomes are mandatory where the scheme applies: there is no opt-out.

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Margin only
VAT is charged on the margin between your selling price and the cost of bought-in travel elements, not on the full price charged to the customer (gov.uk Notice 709/5)
No input VAT
Input VAT on bought-in accommodation, transport and other designated travel services cannot be recovered under TOMS. This is a fundamental feature of the scheme.
Any operator
TOMS applies to any business packaging bought-in travel elements, not only dedicated tour operators. Hotels, guest houses and event venues are all in scope if the conditions are met.

The challenges operators face.

TOMS catches hotels and venues that do not think of themselves as tour operators

A hotel that sells its own rooms under normal VAT rules is outside TOMS. But if that hotel buys in third-party transfers, tours or third-party accommodation for overflow and packages them with the stay, those bought-in elements fall inside TOMS. HMRC's Notice 709/5 is explicit: TOMS applies when bought-in travel elements are resold to the traveller, even where travel is not the operator's main activity. The analysis depends on the specific supply chain, not the operator's self-description.

In-house and bought-in supplies must be separated

TOMS applies only to bought-in travel services. Where a business provides its own services (in-house accommodation, in-house meals, own-operated transport), those supplies fall outside TOMS and follow normal VAT rules. A mixed package that combines in-house and bought-in elements requires careful apportionment: the in-house element is taxed normally and the bought-in element is taxed on the margin only.

Input VAT on bought-in elements is not recoverable

A fundamental consequence of TOMS is that input VAT on designated bought-in travel services (accommodation, transport and other package elements from third parties) cannot be recovered. This is the trade-off for paying VAT only on the margin rather than on the full selling price. Operators sometimes mistakenly claim input VAT on these costs; HMRC will require repayment with interest.

The margin calculation must be done correctly

Under TOMS, VAT is calculated on the margin between the price charged to the customer and the cost of the bought-in elements. The calculation is applied to the business's overall TOMS margin, not transaction by transaction in all cases. Errors in identifying the bought-in costs, applying the correct VAT fraction or filing the calculation on the VAT return result in over or underpaid VAT.

How we help.

TOMS applicability assessment

We analyse your supply chain and business model to determine whether TOMS applies and to which elements of your operation it reaches. The assessment covers your own-supply versus bought-in split, the nature of the package you offer, and whether any elements fall outside the scheme. See also <a href="/services/hospitality-vat">our hospitality VAT service</a> for the broader VAT picture.

Margin calculation and VAT return compliance

Where TOMS applies, we calculate the margin correctly, ensure the VAT fraction is applied to the right base and file the result on your VAT return. We maintain the records needed to support the calculation on HMRC review, including the breakdown of bought-in costs by reference period.

Mixed supply structuring

Where your operation combines in-house and bought-in elements, we advise on the correct apportionment, document the split between TOMS and standard VAT supplies, and ensure input VAT is recovered only on the elements that qualify. For operators at <a href="/for/hotels-and-guesthouses">/for/hotels-and-guesthouses</a>, we incorporate TOMS into the full accounts and VAT function.

Common questions

Does TOMS apply to my hotel if I am not a tour operator?
Possibly, yes. TOMS applies to any business that buys in accommodation, transport or other travel services from third parties and resells them as part of a package to travellers, even where travel is not the main activity (gov.uk Notice 709/5). A hotel that sells only its own rooms is outside TOMS. A hotel that packages third-party transfers, tours or additional accommodation with its own rooms may be inside TOMS for those bought-in elements. The position depends on the specific supply chain and must be assessed rather than assumed.
Can I recover input VAT on bought-in travel services under TOMS?
No. Input VAT on bought-in accommodation, transport and other designated travel services cannot be recovered under TOMS. This is a fundamental feature of the scheme: the trade-off is that VAT is charged only on your margin rather than on the full selling price, which typically produces a lower overall VAT liability. Recovering input VAT on TOMS-designated costs is an error that HMRC will correct with interest.
How is VAT calculated under TOMS?
VAT under TOMS is charged on the margin, which is the difference between the price charged to the customer and the cost of the bought-in travel elements. The applicable VAT fraction is applied to the margin, not to the full selling price. The result is declared on the VAT return. The precise calculation method and whether it applies transaction by transaction or on an annual basis depends on the specifics of your operation; we advise on the correct approach after reviewing the supply chain.
What counts as a bought-in travel element for TOMS?
Bought-in travel elements are accommodation, transport and other travel services purchased from third parties and resold to the traveller as part of a package. Own-supplied services (in-house rooms, in-house meals, transport you operate yourself) are not bought-in elements and fall outside TOMS. Third-party transfers, third-party tours, overflow accommodation sourced from another hotel and packaged with your own room are all potential TOMS elements.

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