The Tour Operators' Margin Scheme (TOMS) provisional percentage uses last year's figures (or an estimate in your first year) to work out your VAT during this year. Each quarter is a down payment, with the year-end calculation settling the difference.
Your booking system may show a margin before the final costs have settled. Discounts, refunds and unfilled places can change the result. That uncertainty explains why TOMS uses provisional figures during the year, followed by an annual calculation (709/5 para 5.12).
This article follows an operator buying in everything, with travel enjoyed inside and outside the United Kingdom (UK). For the wider scheme, start with our complete guide to TOMS VAT.
How do you calculate the TOMS provisional percentage?
Start with the preceding financial year's VAT-inclusive standard-rated amount, calculated at section 10 step 1. For an operator buying in everything, that is the UK margin from section 9 step 12. Divide it by the year's total VAT-inclusive selling prices at section 9 step 1. Then multiply by 100 to get your provisional percentage (section 10, steps 1 and 2).
Think of the calculation as two numbers: the standard-rated amount on top, total selling prices underneath. Keep both labels beside the figures, because an unexplained percentage is remarkably good at surviving several changes of bookkeeper.
The percentage is usually smaller than your overall margin percentage when you sell overseas travel. Margin on travel enjoyed outside the UK is zero-rated, so it adds nothing to the top of the sum, while UK travel margin is standard-rated (709/5 para 4.8).
For this operator, two things drive the percentage: the overall margin relative to sales, and the UK share of travel costs. The annual calculation allocates margin using those costs (section 9, steps 10 to 13). A changing destination mix can therefore change the percentage, even when the margin in pounds stays steady.
If all your supplies are standard-rated, use the simplified calculations in sections 11 and 12 instead (709/5 paras 5.5 and 5.11).
How do you use the percentage each quarter?
First, identify sales with tax points in the period. A tax point is the date your supply becomes taxable. Your booking report therefore needs to follow your TOMS tax point method. The date somebody entered a booking into the system does not, by itself, answer that question (709/5 para 4.13).
Total the VAT-inclusive selling prices for the period. Multiply that total by your provisional percentage to find the provisional standard-rated amount. Then apply the standard rate VAT fraction to that amount to calculate the provisional VAT due (section 10, steps 3 to 5).
At a VAT rate of 20 per cent, the fraction is one-sixth. You are extracting VAT already included in the standard-rated amount (700 para 7.3.1).
You must use the provisional basis during the year, even if your system can calculate the quarter's actual margin (section 13, TL4 paragraph 3). The first-year options are explained below.
For the return itself, see which VAT return boxes TOMS uses.
What happens in your first year of TOMS?
You still need a provisional percentage when you first start using TOMS. You can base it on previous trading figures, projected costings and margins, or actual monthly or quarterly figures. The last option is available only in the first year (709/5 para 5.13).
Write down which basis you used and keep the figures supporting it. If you use projections, record the expected selling prices, costs and margins clearly.
Your first year-end calculation and adjustment correct any underpayment or overpayment during that first year (709/5 para 5.13).
How does the TOMS year-end adjustment work?
Do the annual calculation immediately after your financial year ends. You cannot wait for audited accounts before carrying out the calculation or adjustment (709/5 para 5.8).
The adjustment belongs on the return for the first VAT period ending after your financial year end (section 13, TL4 paragraph 4).
Subtract the provisional VAT accounted for during the year from the annual VAT due. A positive difference is payable in Box 1; a negative difference is deductible in Box 1 (section 9, steps 30 to 32).
Owen's starting percentage
Illustrative example, not a real business.
Owen runs a tour operator with a 31 March year end. His VAT quarters end in June, September, December and March, and everything he sells is bought in.
For the year to 31 March 2026, sales with tax points total £800,000. Travel enjoyed in the UK costs £170,000, while travel outside the UK costs £510,000. Total costs are £680,000, leaving a margin of £120,000.
UK travel represents 25 per cent of those costs. Applying that share to the total margin gives a UK margin of £30,000 (section 9, step 12).
His provisional percentage for the year to 31 March 2027 is £30,000 divided by £800,000, times 100. That gives 3.75 per cent (section 10, steps 1 and 2).
The quarterly down payments
Owen applies 3.75 per cent to each quarter's sales with tax points. He then takes one-sixth of the resulting standard-rated amount as VAT (section 10, steps 3 to 5). The table keeps the sales, provisional amount and VAT separate.
| Period | Sales with tax points | Standard-rated amount at 3.75 per cent | VAT for Box 1 |
|---|---|---|---|
| April to June 2026 | £180,000 | £6,750 | £1,125 |
| July to September 2026 | £260,000 | £9,750 | £1,625 |
| October to December 2026 | £240,000 | £9,000 | £1,500 |
| January to March 2027 | £220,000 | £8,250 | £1,375 |
| Year | £900,000 | £33,750 | £5,625 |
The annual settlement and next percentage
For the year to 31 March 2027, assume sales are £900,000. UK costs are £156,000 and non-UK costs are £624,000. Total costs are £780,000, leaving a margin of £120,000.
The UK share of costs is now 20 per cent, making the UK margin £24,000 (section 9, step 12). The total margin has stayed the same, while the share allocated to UK travel has fallen.
VAT on the UK margin, using one-sixth, is £4,000. With everything bought in, this is also Owen's total annual TOMS VAT (section 9, steps 20 and 30).
His provisional VAT paid totals £5,625. The adjustment is £4,000 less £5,625, giving minus £1,625. He deducts £1,625 in Box 1 (section 9, steps 31 and 32).
That deduction goes on the return for the quarter to 30 June 2027. It is his first VAT period ending after 31 March 2027 (section 13, TL4 paragraph 4). The overseas share of costs grew, so the provisional figure overpaid.
His new provisional percentage for the year to 31 March 2028 is £24,000 divided by £900,000, times 100. That is about 2.67 per cent (section 10, steps 1 and 2).
You must calculate a revised percentage every year. Reusing the percentage applied during the year just finished skips that recalculation (709/5 para 5.11).
What should you do this quarter?
We suggest keeping the following checks together with your return workings:
- Find the annual calculation supporting the percentage currently in use.
- Check which financial year that percentage belongs to.
- Confirm your sales report identifies the relevant tax points.
- Show sales, the provisional standard-rated amount and VAT on separate lines.
- Keep a running total of provisional VAT for the annual comparison.
- Assign responsibility for the year-end calculation and the next percentage.
Keep separate records of direct costs for standard-rated and zero-rated Margin Scheme supplies (709/5 para 5.6). Those records support the annual split.
At Zmartly, we start with the booking reports behind the figures. Our accountants for travel agencies and tour operators can help you connect those records to a clear quarterly calculation and annual settlement.
Frequently asked questions
What is the TOMS provisional percentage?
The Tour Operators' Margin Scheme (TOMS) provisional percentage estimates the standard-rated part of your sales during the year. For an operator buying in everything, start with the previous financial year's VAT-inclusive UK margin. Divide it by that year's total VAT-inclusive selling prices, then multiply by 100. Apply the resulting percentage to the current period's sales before calculating VAT.
What if I am in my first year of TOMS?
In your first year of the Tour Operators' Margin Scheme (TOMS), you must establish a provisional percentage. You can use previous trading figures, projected costings and margins, or actual monthly or quarterly figures. That last option is available only during the first year. Your first year-end calculation and adjustment correct any underpayment or overpayment during that year.
Can I keep using last year's percentage?
You must calculate a revised provisional percentage at each financial year end under the Tour Operators' Margin Scheme (TOMS). You cannot simply carry forward the percentage used during the year just finished. Use the completed annual calculation to establish next year's percentage, even if it produces the same number.
What if the year-end adjustment is negative?
A negative Tour Operators' Margin Scheme (TOMS) year-end adjustment means your provisional VAT exceeded the annual amount due. Deduct the difference in Box 1 of your VAT return. The calculation subtracts the year's provisional VAT from the VAT established by the annual calculation. A positive difference is payable instead.
Sources
Every rule in this article was checked against these pages on 22 October 2026.
