VAT tips for Serviced Accommodation Business – TOMS

The Tour Operator’s Margin Scheme (TOMS) is applicable when businesses directly purchasing and reselling travel, accommodation, and specific services.

A serviced accommodation business will fall under TOMS provided certain conditions are met. TOMS has benefits including reducing your VAT liability and allows for the recovery of input VAT incurred from indirect expenses such as accountancy and agency fees.

In this blog we will look at if your serviced accommodation business is eligible for TOMS, the benefits and our top tips for people running serviced accommodation businesses.

What is the Tour Operator’s Margin Scheme (TOMS)

The Tour Operators Margin Scheme (also known as TOMS) is a special scheme for businesses that buy in and resell travel, accommodation and certain other services as a principal or undisclosed agent in the tour and travel industry. Its aim is to simplify the VAT rules

TOMS varies from the standard VAT rule by charging VAT on the Margin made instead of on the taxable turnover.

We will now be understanding if your serviced accommodation business is eligible for the Tour Operators’ Margin Scheme.

Conditions for applying for the Tour Operator’s Margin Scheme

TOMS applies where:

There is a supply of “Travel services”

• Accommodation is a travel service if it is held out for use by tourists, travellers or visitors. These are in direct competition with hotels.

The supplier is acting in their own name

• Acting in own name under TOMS means that the supplier must have contract for the lease with the landlord with contract allowing subletting or conducting the service accommodation business in the individual’s name if they own the property. It’s crucial not to act as an agent of the landlord, and the service provider must operate independently.

The service is acquired from a third party and are supplies without “material alteration” or “further processing”

• To be eligible for TOMS the state of the property should be same when it was initially leased to when the service is provided to the traveller. Material alteration generally means significantly furnishing the property from its original state, changing the structure of the property or serviced accommodation provider adds in some key features such as catering. Things like decoration or cosmetic changes do not amount to material alteration.

The services are supplied “for the benefit of the traveller”

• A traveller can be a business or individual who receives a supplied service.

Benefits of TOMS

TOMS offers many benefits, including a reduced VAT liability. The VAT is only charged on the margin made by the serviced accommodation. TOMS also allows for the recoverability of Input VAT incurred on indirect expenses like agent fees and accountancy fees.

VAT Liability of the margin under TOMS

The VAT liability under TOMS varies. For example, it is standard-rated when the accommodation is in the UK and zero-rated when outside the UK.

Understanding the Tour Operators Margin Scheme (TOMS) -Frequently Asked Questions

1. What taxable turnover is for VAT registration or de-registration purposes

Serviced accommodation operators must register for VAT if:

• your total VAT taxable turnover for the last 12 months was over £85,000 (the VAT threshold)
• you expect your turnover to go over £85,000 in the next 30 days

You must also register (regardless of VAT taxable turnover) if all the following are true:

• you’re based outside the UK
• your business is based outside the UK
• you supply any goods or services to the UK (or expect to in the next 30 days)

2. What is classed as serviced accommodation?

Serviced accommodation refers to fully furnished properties that have all the necessary furniture and equipment needed in a house and is available for both short and long-term letting.

3. When is the TOMS calculation carried out?

TOMS calculation is carried out once a year following the financial year end. VAT is paid throughout the year, but on provisional basis, based on the last year’s margin and VAT payment.

4. What can VAT be recovered on under TOMS?

VAT cannot be recovered on any input VAT on direct costs (i.e. rent, utility bills, insurance etc), but it can be recovered on overheads.

Conclusion

The Tour Operator’s Margin Scheme (TOMS) can be a beneficial scheme for businesses that provide serviced accommodation to people or businesses. TOMS offers potential savings in VAT liability.

Companies like Airbnb and similar suppliers emerging in the accommodation market have caused a significant challenge to hotel accommodation and serviced apartment operators when renting serviced accommodation.

Businesses like Airbnb provide services to introduce a property owner to a customer but very often the service of renting the accommodation is provided by the owner directly to the customer. While that income is still taxable, each property owner’s income is typically below the VAT registration threshold of £85,000, so they do not need to charge VAT.

Value-added tax (VAT) is complicated, and how special schemes and rules are used can lead to complicated legal disputes. Navigating the VAT landscape for Serviced Accommodation Operators involves understanding TOMS, recent court rulings and being aware of any changes happening.

Our advice to ensure your VAT compliance and to ensure you benefit from VAT savings if you are supplying holiday accommodation and using TOMS is to seek professional advice from a tax expert such as dns accountants.

Please contact dns on 03300 886 686 or email us on enquiry@dnsaccountants.co.uk. today to find out more about TOMS and VAT.

About the author

Owais Bombaywala
Working closely with individuals and businesses to help grow their business requires a significant amount of experience and industry knowledge. Owais is BA (Hons) Accounting and Finance and Member of ACCA. Besides being a compliance champion, he specialises in Property tax planning. With over 7 years of experience in Accountancy and Tax world, our clients count on us to give them timely and up to date advise to help them make the right move. Owais works closely with some of the DNS’s most valued clients to give them the confidence they need to focus on their business. He is known for his calm nature and proactive approach. At DNS, we proud to be a modern and client centric firm. Our advise doesn’t just look at what’s best for your business moreover our aim is to help you achieve your personal goals. Away from work, he resolve family disputes and provide care and support to elderly people. He is a founding member of Human welfare organisation Hounslow.