Corporate travel is a necessity for many businesses, but it’s often fraught with hidden costs that can eat away at your budget. One of these hidden costs is TOMS (Tour Operators’ Margin Scheme), a tax complication that can significantly impact the amount of VAT you can reclaim.
What is TOMS?
The Tour Operators’ Margin Scheme (TOMS) is a tax regulation that applies when travel agencies bundle various travel-related services and recharge them to clients. This scheme can obscure the VAT element in the gross total fee, making it difficult for companies to reclaim the VAT they’re entitled to.
The Hidden Cost of TOMS
When a travel agency recharges costs like hotel, transport, and food service under TOMS, the VAT is included in the overall charge. This bundled approach hides the individual VAT amounts, leading to significant financial losses for businesses that cannot reclaim the hidden VAT.
What is the Transparent Mandate Solution?
The Transparent Mandate Solution is an alternative approach for travel agencies to manage travel-related expenses. Unlike the Tour Operators’ Margin Scheme (TOMS), which bundles costs and obscures the VAT component, the Transparent Mandate Solution ensures clarity and transparency in VAT charges.
How the Transparent Mandate Solution Works?
Under the Transparent Mandate Solution, travel agencies manage payments for travel-related services but ensure that invoices are issued directly from service providers (e.g., hotels, restaurants, transport companies) to the client company. The travel agency then charges a separate service fee for their management services. This method allows the VAT to be clearly itemized on each invoice, making it fully recoverable for the client company.
Cost Savings Analysis
To illustrate the difference between TOMS and the Transparent Mandate Solution, let’s look at a detailed comparison of both approaches in the table below.
Imagine a travel agency organizes a trip for your company and charges €11.190, which includes:
• Hotel: €4.000
• Transport: €3.000
• Food Service: €3.000
• Agency fees: €1.190
With TOMS, the service providers charge the travel agency €10.000 in total. The agency adds a margin of €1.000 plus applies 19% VAT and charges your company €11.190 in total. VAT is embedded within the price, but no VAT can be recovered by the customer because it is not clearly itemized and not separately shown.
With Transparent Mandate: Using the same example, where the service providers charge €10.000 and the travel agency charges a service fee of €1.000, you receive 4 different invoices:
• Hotel issues an invoice directly to your company for €3.738 + €262 VAT (7% in Germany).
• Transport issues an invoice for €2.521 + €479 VAT (19% in Germany).
• Food Service issues an invoice for €2.521 + €479 VAT (19% in Germany).
• Travel agency issues an invoice for their service fee of €1.000 + €190 VAT (19% in Germany).
Here, your company receives 4 separate invoices totaling €11.190, with €1.410 clearly itemized VAT.
By using the transparent mandate approach, your company can reclaim €1.410 in VAT, equivalent to 12.6% of your travel budget.
How VAT4U Can Help
VAT4U specializes in helping companies set up the right processes to avoid the pitfalls of TOMS. By ensuring that your procurement and tax teams work together, we help you implement transparent mandates for travel expenses. This collaboration ensures all invoices are directly issued to your company, allowing you to reclaim the maximum amount of VAT.
Benefits of Using VAT4U
• Increased VAT Recovery: Transparent invoicing makes VAT visible and reclaimable.
• Cost Efficiency: Avoid hidden costs and save money on corporate travel expenses.
• Process Optimization: Streamline procurement and tax processes for better financial management.190
