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The Tour Operators Margin Scheme and Xero

Author: Rebecca Bishop, TOMS Accountant, MHA MacIntyre Hudson

Published: 20 May 2021

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We receive many queries from clients asking how they can use Xero to account for VAT under the Tour Operators Margin Scheme. Using the scheme can make recording entries in your accounting system slightly more complicated but it can be done. In this article Rebecca Bishop, TOMS Accountant explains how.

Introduction

The Tour Operators Margin Scheme (TOMS) changed from 1 January 2021, when the UK left the Brexit transitional period. The margin on holidays enjoyed outside the UK has become zero rated, however for many, TOMS VAT will still be payable. Using the scheme can make recording entries in your accounting system slightly more complicated BUT it can be done.

As a business your reporting requirements and preferences will be unique to you, and I would always recommend seeking advice on the best and most efficient software solution for you. Setting your system up the right way from the start will save you headaches further down the line. There are lots of accounting packages out there, which are very similar in terms of features and functionality. The most common one I get asked questions about is Xero. Xero has become one of the most popular cloud-based accounting systems for small to medium sized businesses and for good reasons.

Below I wanted to cover some of the most common questions I get asked about TOMS and Xero.

I need to record both the booking date and the departure date in Xero, but there is only one date field?

Now this is probably the trickiest problem and there is no one answer. My first recommendation would be to have a separate CRM system to keep track of bookings, either a standalone software or one that integrates with Xero. You can then use the CRM system to generate a summary report of departures for the month and enter a journal into Xero to reflect the sales by departure.

Another option would be to record transactions into Xero on a bookings basis, using a deferred income code, entering the departure date in the description, exporting the data monthly to Excel, sorting by description, which will be the departure date, in order to give you your monthly departures value, which will then need to be journaled out of deferred income and into sales. A similar approach applied for direct costs.

What tax code should I use when recording transactions that fall under TOMS?

Both sales and direct costs should be coded into Xero using the tax code ‘No VAT’. The reason being is that you do not want these transactions pulling through directly to your VAT return. Instead you should enter the quarterly VAT journal noted below. Note that overheads do not fall under TOMS and therefore normal VAT rules apply, use tax codes as appropriate.

How do I reflect my provisional payments correctly in boxes 1 and 6 on the VAT return?

The best way to account for your provisional TOMS payment each quarter is to enter a manual journal. You want to end up with the output tax in box 1 and the net margin in box 6. If you had total departures for the quarter of £200,000 and a provisional % of 30%, your provisional payment would be calculated as follows: Sales £200,000 x 30% x 1/6th = £10,000 provisional VAT.

I would like to be able to track income and direct costs by destination/resort. What’s the best way to achieve this?

Xero has a great reporting function called tracking categories. You can have up to 2 tracking categories with up to 99 fields in each. For example, you can set up a tracking category called Destinations, so that when entering transactions, you can assign transactions to a destination or resort.

*The views expressed are the author’s and not ICAEW