Accountants for Travel Agencies
Buy in flights, hotels and transfers, sell them in your own name, and you pay VAT on your margin rather than on the full price the customer pays.
That is the Tour Operators Margin Scheme. It is not optional, it is the thing generalist accountants get wrong, and it changes your VAT bill, your invoicing and even whether you have to register for VAT at all. Zmartly is CIMA-regulated, 240+ UK businesses served, on fixed monthly fees from £129 plus VAT.
Do I have to use the Tour Operators Margin Scheme?
- If you are a principal or an undisclosed agent, yes
- HMRC is direct about it: you are acting as a tour operator and must account for VAT using TOMS if you are an undisclosed agent, that is acting in your own name, or a principal. You do not have to think of yourself as a tour operator for it to catch you. What matters is that you buy something in from another business and resell it, without materially altering it, for the direct benefit of a traveller.
- It is the type of service that triggers it
- HMRC calls the things TOMS applies to designated travel services, and the list it treats as always included is accommodation, passenger transport, hire of a means of transport, trips or excursions, the services of tour guides and the use of special lounges at airports. Package up two or three of those in your own name and you are inside the scheme, whatever your company is called.
- VAT falls on your margin, and where the tour is enjoyed sets the rate
- You account for VAT on the difference between what the customer pays you and what you pay your suppliers. That margin is standard-rated when the tour is enjoyed in the UK and zero-rated when it is enjoyed outside the UK. For an agency selling holidays abroad, that second line is most of the story. The trade-off is that you cannot reclaim VAT on purchases you make to resell as Margin Scheme supplies.
- Most agencies are running both models at once
- Packages sold as principal, flight-only sold as a disclosed agent for the airline. That is perfectly legitimate. It simply has to be split and taxed as two streams, and the split has to match what your contracts actually say rather than what the invoice template assumes. Where you act as the initial intermediary arranging zero-rated passenger transport, the service of arranging it is itself zero-rated.
Does the £90,000 threshold use my sales or my margin?
Your margin, and most travel businesses have never been told it. For deciding whether you must register or may deregister, HMRC treats your taxable turnover as the total margin on your taxable, including zero-rated, Margin Scheme supplies. Not the money that passes through your account. Rosa runs a small tour company from Bristol selling walking holidays in Italy.
- Taken from customers over the year
- £400,000
- Less flights, hotels and transfers bought in
- £340,000
- Margin, which is her taxable turnover for VAT
- £60,000
- VAT registration threshold
- £90,000
Rosa sits comfortably below the threshold despite £400,000 going through the bank. Because her tours are enjoyed outside the UK her margin is zero-rated, so no VAT is due on it, but zero-rated margin still counts towards the threshold, so £60,000 is the number she watches rather than nil. Either way she cannot reclaim the VAT on the £340,000 she bought in. Whether your own contracts work this way is a question of fact about what you have signed, and it is the first thing we settle.
Five things a generalist accountant gets wrong
None of these is exotic. All of them are routine in travel and rare everywhere else, which is why they survive so long unnoticed.
- Reading gross bookings as turnover
- An accountant looking at £400,000 through the bank registers a business whose taxable turnover is a £60,000 margin. That costs the fees and the admin, and it can cost the pricing too. The registration test for a TOMS business runs on the margin.
- Issuing a VAT invoice for a package
- HMRC is unambiguous that VAT invoices cannot be issued for supplies accounted for under TOMS. The reason is mechanical rather than punitive: the output tax will not usually be known when the supply is made, because it falls out of the annual margin calculation. Where you sell a TOMS supply to a business customer the invoice carries a reference showing TOMS has been applied instead. This is the item inspections pick up most often, because the invoice template arrived with a VAT line on it and nobody took it off.
- Getting agent or principal the wrong way round
- A disclosed agent names the airline, hotel or operator, earns a commission or fee, and sits outside TOMS, accounting for VAT on that commission or fee under the normal rules. To be disclosed you must routinely fully disclose the name of the principal you act for, on the tickets you issue or in your booking terms. Sell in your own name and you are inside TOMS. One catch: variable commission, or commission otherwise not readily identifiable, has to go into the TOMS calculation even for a disclosed agent.
- Reclaiming input VAT on bought-in travel
- You cannot reclaim VAT on purchases that you make to resell as Margin Scheme supplies. It is a different basis of taxation, not simply a lower one, which is why the scheme is worth modelling against your actual numbers rather than assuming it is cheaper.
- Treating the quarterly return as the final answer
- TOMS runs on a provisional figure through the year and a true-up at the end of it, with the difference adjusted on the VAT return for the first prescribed accounting period ending after the end of your financial year. So the quarter is an estimate. The accuracy of the annual calculation depends entirely on whether every bought-in cost was captured against the right supply during the year, because a cost you missed is margin you did not make and VAT you did not owe. That is a bookkeeping problem before it is a VAT problem.
What does a travel agency accountant actually do?
01Agent or principal, settled from your contracts
We read your supplier terms and your customer terms, write down which parts of the business are which, and keep the two streams apart in the ledger. Where the model is mixed it stays mixed on purpose rather than by accident.
02The TOMS calculation, run properly
Provisional percentage through the year, the annual margin at the end of it, in-house supplies separated from Margin Scheme supplies, and the adjustment made on the right return.
03Your margin watched against £90,000
Monthly, because the number that decides your registration is not the one on your bank statement, and because it moves. The threshold is £90,000 to register and £88,000 to deregister.
04Invoicing that survives an inspection
No VAT invoices on TOMS supplies, the right reference for business customers, and paperwork that does not invite a question in the first place.
05Currency, deposits and cancellations
Travel runs on euros and dollars and on money taken months before anyone travels. Retained deposits, cancellation charges and chargebacks are where small errors quietly compound.
06The ordinary work as well
Bookkeeping, VAT returns, year-end accounts, Corporation Tax, payroll and Self Assessment, in Xero, QuickBooks, FreeAgent or Sage, plus getting owner-managers ready for Making Tax Digital for Income Tax as it phases in.
How do we get you set up?
- 01
Discovery
Understanding your business needs.
- 02
Solution Design
Crafting your custom accounting strategy.
- 03
Onboarding
Quick and easy integration.
- 04
Regular Rhythm
Consistent monitoring and reporting.
Guides for travel agencies
Plain-English explainers, kept current with the latest HMRC rules.
Travel agency VAT and tax questions
You cannot opt out. HMRC's wording is that you are acting as a tour operator and must account for VAT using TOMS if you are an undisclosed agent, meaning acting in your own name, or a principal. If you only ever act as a disclosed agent earning a commission or a fee, TOMS does not apply to that work and you account for VAT on the commission or fee under the normal rules. We settle which camp each part of your business falls into from your contracts rather than from what the invoices happen to say.
Often, because VAT falls on your margin rather than on the full sale price, and because a margin on a tour enjoyed outside the UK is zero-rated while one enjoyed in the UK is standard-rated. The trade-off is that you cannot reclaim VAT on purchases you make to resell as Margin Scheme supplies. It is a different basis of taxation, not automatically a cheaper one, so it is worth having someone run your actual numbers.
On your margin. For registration and deregistration HMRC treats your taxable turnover as the total margin on your taxable, including zero-rated, Margin Scheme supplies. So an agency taking far more than £90,000 in bookings can sit well below the threshold. Zero-rated margin still counts towards it, so the figure you watch is the margin rather than nil. We track it monthly.
No. HMRC states that VAT invoices cannot be issued for supplies accounted for under TOMS, because the output tax will not usually be known when the supply is made: it falls out of the annual margin calculation. Where you sell a TOMS supply to a business customer, the invoice has to carry a reference showing that TOMS has been applied instead. This is the point VAT inspections raise most often in travel.
Both, to different parts of the business. Packages sold in your own name are usually TOMS. Flight-only sold as a disclosed agent for the airline is usually commission under the normal rules, and where you act as the initial intermediary arranging zero-rated passenger transport, the service of arranging it is itself zero-rated. The split has to follow your contracts, and we keep the two streams apart in the ledger so each is taxed correctly.
Fixed monthly fees of £129, £250 or £499 plus VAT depending on the support you need, on a rolling monthly basis with no long tie-in. You get a named qualified accountant who already understands travel VAT, and we reply within 72 hours. If you only want the year end done, that is available as a one-off instead.
Yes. We work online with clients across the UK, on a named accountant rather than a call centre, in Xero, QuickBooks, FreeAgent or Sage, whichever you already run. Nothing about the TOMS work needs us to be in the same building as you.
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