For your Tour Operators' Margin Scheme (TOMS) VAT return, the VAT on your TOMS sales in Box 1 comes from a provisional percentage, normally taken from last year's calculation, not from gross selling prices or this quarter's actual margin. Box 4 holds recoverable VAT on overheads and in-house costs, never travel bought in for resale. Your quarterly Box 6 value for bought-in travel comes from the provisional margin, never gross bookings. HM Revenue and Customs (HMRC) gives no TOMS-specific instruction for Box 7.
Your booking system reports sales and costs, but turning that report into a return needs another calculation.
This guide focuses on completing your quarterly return. For the wider picture, read how the Tour Operators' Margin Scheme works from start to finish.
Why can't I use this quarter's actual margin?
Discounts, refunds and unfilled places can still affect your margin. Precise figures are usually unknown when the return is due, so TOMS requires provisional output VAT during the year. Output VAT means the tax you account for on sales (709/5 para 5.12).
You account for VAT on the provisional value in the period when the supplies are made. The full route uses section 10 of the notice; the simplified route uses section 12 (section 13, TL4 paragraphs 2 to 3).
If all your in-house and Margin Scheme supplies are standard-rated, the simplified calculation is compulsory. You cannot choose it if any supplies are zero-rated, reduced-rated or outside the scope of VAT (709/5 para 5.5).
Use the percentage produced from the preceding year's calculation, rather than carrying an older percentage forward (709/5 para 5.11). Our separate guide explains how the provisional percentage is set each year.
Previous trading figures, projected costings or actual monthly or quarterly figures can establish your first-year percentage. That last option does not continue into subsequent years (709/5 para 5.13).
What goes in Box 1?
Start with the selling prices included in the period's calculation. Apply your provisional percentage to find the provisional standard-rated amount. Then apply the VAT fraction to produce the provisional output VAT for Box 1. The full calculation follows section 10; the simplified calculation follows section 12 (section 10, steps 3 to 5; section 12, steps 2 to 4).
At the standard rate of 20 per cent, the VAT fraction is one-sixth. This extracts VAT already included in the provisional amount. Multiplying that amount by 20 per cent would give a different answer (700 para 7.3.1).
Box 1 also includes output VAT on sales outside TOMS. An in-house supply means something supplied from your own resources, or created by materially changing bought-in components. When sold on its own, it follows normal VAT rules (709/5 paras 2.12 to 2.13).
Standard-rated commission earned as a disclosed agent for a UK tour operator also contributes to Box 1. Here, you are arranging the sale for the named operator (709/6 para 3.7).
The annual adjustment belongs on the return for the first VAT period ending after your financial year end (section 13, TL4 paragraph 4).
Add a positive annual adjustment to Box 1 and deduct a negative adjustment. This brings the year's provisional output VAT into line with the annual calculation (section 9, step 32; section 11, step 7).
What can I reclaim in Box 4?
Box 4 includes recoverable VAT on your overheads and purchases relating to in-house supplies. Recovery remains subject to the normal rules (709/5 para 4.3).
You cannot reclaim VAT on purchases resold as Margin Scheme supplies. A hotel invoice showing VAT separately does not change that rule (709/5 para 4.4). Put it in Box 4 and you understate what you owe.
We suggest keeping separate purchase categories for travel bought for resale, overheads and in-house costs. A single category called "travel costs" asks rather a lot of whoever prepares your return.
Commission for arranging travel insurance can be exempt when the conditions apply. For insurance attached to taxable travel, those conditions include telling the traveller the premium and any additional insurance fee in writing (709/6 para 3.4).
Partial exemption can then limit the VAT recoverable in Box 4. Under the de minimis rule, exempt input tax must meet both limits: no more than £625 a month on average and no more than half your total input tax. Input tax means VAT on purchases; the test concerns that VAT, not your insurance commission income (706 para 11.2).
What goes in Boxes 6 and 7?
For bought-in Margin Scheme travel, quarterly Box 6 starts from the provisional margin calculation. Your annual calculation produces percentages for provisional output VAT and net sales values during the following year (709/5 para 5.11).
Under the simplified route, subtract provisional output VAT from the provisional standard-rated amount. The result is the provisional VAT-exclusive value for Box 6 (section 12, step 5).
The second-hand goods margin scheme puts the full selling price, less VAT on the margin, into Box 6 (700/12 para 4.4). Carrying that habit into TOMS overstates your quarterly Box 6 turnover for bought-in travel.
HMRC gives no TOMS-specific instruction for Box 7. VAT Notice 700/12 has no TOMS section, and VAT Notice 709/5 has no Box 7 step.
We leave the cost of travel bought in for resale out of Box 7. This puts it alongside a Box 6 built from margin. Other purchases and expenses, including overheads and in-house costs, go in under the normal Box 7 rules, which leave out items such as wages and local authority rates. Whatever you choose, apply it the same way every quarter.
What does a completed quarterly calculation look like?
Illustrative example, not a real business.
You run a short-breaks operator selling UK packages built from bought-in hotel rooms and coach seats. Everything is enjoyed in the UK and standard-rated, so you use the simplified route (709/5 paras 4.8 and 5.5).
Last year's simplified calculation in section 11 gave a margin of 18 per cent of sales. This becomes your provisional percentage for the current year (section 12, step 1).
Your quarter's sales with tax points come to £240,000. Applying 18 per cent gives a standard-rated amount of £43,200. One-sixth of £43,200 gives £7,200 for Box 1. Subtracting £7,200 from £43,200 gives £36,000 for Box 6 (section 12, steps 2 to 5).
Your overheads, including rent, software and accountancy, cost £4,500 before VAT. The recoverable VAT is £900, which goes in Box 4 (709/5 para 4.3).
You paid hotels and coach firms £190,000 for the quarter's trips. Any VAT on those bought-in Margin Scheme purchases cannot be reclaimed (709/5 para 4.4).
Under our Box 7 treatment, the £190,000 stays out and the £4,500 of overheads goes in. With no other entries, your five boxes look like this:
| Box | Amount | Working |
|---|---|---|
| Box 1 | £7,200 | Provisional output VAT |
| Box 4 | £900 | Recoverable overhead VAT |
| Box 5 | £6,300 | Box 1 less Box 4 |
| Box 6 | £36,000 | Provisional VAT-exclusive value |
| Box 7 | £4,500 | Overheads under our treatment |
The £240,000 of bookings appears in no box but remains the starting figure in your workings. The quarter's actual margin plays no part in the return.
What should you check this quarter?
- Confirm which annual calculation produced your current provisional percentage.
- Check the quarter's sales report against your calculation's tax points.
- Keep the workings that turn sales into Boxes 1 and 6.
- Review Box 4 for hotel VAT or other travel bought for resale.
- Check any exempt income before finalising recoverable VAT.
- Check whether this return needs the annual Box 1 adjustment.
- Record and consistently apply your Box 7 treatment.
If you want help connecting your booking records to these calculations, our accountants for travel agencies and tour operators can review your workings and explain how each figure reaches the return.
Frequently asked questions
Do I put my total bookings in Box 6?
No. For travel bought in and resold under the Tour Operators' Margin Scheme (TOMS), quarterly Box 6 comes from the provisional margin calculation. Under the simplified calculation, deduct provisional VAT from the provisional standard-rated amount to get the VAT-exclusive value.
Can I reclaim the VAT on hotels I resell?
No, if you buy the hotel accommodation to resell as a Margin Scheme supply. You cannot reclaim that VAT in Box 4, even if the invoice shows VAT separately. VAT on business overheads may be recoverable under the normal rules.
Where does the year-end adjustment go?
The year-end output VAT adjustment goes in Box 1. Add a positive adjustment and deduct a negative one. Include it alongside other output VAT on the return for the first VAT period ending after your financial year end.
Can I use this quarter's real margin instead of the percentage?
Normally, no. During the year you use the provisional percentage because precise figures are usually unknown when returns are due. In your first year, actual monthly or quarterly figures may help establish the provisional percentage. This exception does not apply in subsequent years.
Sources
Every rule in this article was checked against these pages on 22 October 2026.
