The tour operator margin scheme for holiday suppliers
The tour operator margin scheme allows GST to be charged only on the difference (or margin) between the buying and selling prices, and for holiday suppliers to differentiate between those components of the holiday that are zero-rated for GST, and those that are not.
Holidays outside Jersey
Where a holiday that is enjoyed outside Jersey is sold by a Jersey supplier to a Jersey customer, all the components are zero-rated or exempt for GST.
If you sell, as agent or principal, holidays to be enjoyed outside Jersey (except for excursions sold as part of a package that is itself a holiday in Jersey) you must account for your sales outside the margin scheme.
Holidays in Jersey
You should read this information if:
- you supply holidays as a principal, buying in components such as accommodation, travel, tours and car hire, or
- you act as an agent, selling holidays on behalf of another business
The main objective in designing the method of calculating GST is for it to be as simple as possible while treating businesses in the hospitality sector fairly. It uses the GST fraction to calculate output tax (sales GST) on supplies at the standard rate of GST.
Are you an agent or principal?
The treatments for GST vary depending on whether you are an agent or principal. A business may be an agent for some of the sales it makes, and a principal for others.
You are acting as a principal if you buy in components of a holiday, such as accommodation, travel, tours and car hire, or provide these from the resources of your own business, and sell the components in your own name, either individually or as a package.
You are acting as an agent if you do not buy in the components of a holiday but sell them, or the package, on behalf of another business.
Normally this is in return for a commission, although you are acting as an agent even if you do not take a commission. For example, you may include a component supplied by someone else in a package you put together, without taking a commission, because it makes the overall package more attractive to potential customers.
An 'undisclosed agent' is treated as if they were principal. You are acting as an undisclosed agent when the customer is not aware that someone else, and not you, is making the supply.
Supplies as a principal
Where you are acting as principal, GST may be calculated on holiday packages that you sell as a principal in one of two ways:
- the package basis, or
- the components basis
You may elect to use either of these, and may use both in different parts of your business where your accounting system allows these to be clearly identified.
You do not have to seek permission but should be clear in your own records about which method you are using and where.
The package basis
How GST is calculated on the holidays you sell depends on the liability of each component that you buy in and presumes that you, as the tour operator, are GST-registered.
Where a bought-in component is zero-rated for GST, a corresponding proportion of the selling price of the holiday is also zero-rated. (In the following example, air and sea travel to and from Jersey are zero-rated for GST.)
Where you sell a package that includes both standard and zero-rated components, the proportion of the value of your supply that is taxable at GST standard rate is equal to the proportion of the costs of the components of the holiday that are standard-rated.
Example
This example shows how the package basis works (assuming the standard rate of GST to be 5%):
| Cost |
Net |
GST |
Gross |
|---|
| Travel (air / sea) |
£100.00 |
£0.00 |
|
| Accommodation |
£100.00 |
£5.00 |
|
| Car hire |
£10.00 |
£0.50 |
|
| Coach tours |
£10.00 |
£0.50 |
|
| Transfers |
£10.00 |
£0.50 |
|
| Total cost of purchases |
£230.00 |
£6.50 |
£236.50 |
| Insurance charge* |
£5.00 |
£0.00 |
|
| Total costs: |
£235.00 |
|
|
| Holiday sold at: |
£290.00 |
|
|
| Less insurance billed* |
£10.00 |
|
|
| Taxable sale value: |
£280.00 |
|
input tax = £6.50 |
* Insurance is an exempt supply and therefore not included. In this example it costs £5 and is charged at £10.
In this example, the total cost of purchases is £230 (insurance is GST exempt). Of that £230, £130 is standard-rated (the £100 travel is zero-rated). Total input tax is 5% of £130 = £6.50
The tax calculation as a percentage is therefore:
Standard-rated cost as % |
|---|
Standard-rated costs
Total costs |
£130
£230 |
x |
100
1 |
= 56.52% |
Since 56.52% of total costs are taxed at standard rate, the same figure should be applied to the taxable sale value.
Output tax calculation:
| GST due on sales |
|---|
| Taxable sale value x % standard-rated cost |
£280 x 56.52% |
= |
£158.26 |
| Proportion of sale value that is taxed x GST fraction |
£158.26 x 5
105 |
= |
£7.54 |
Tax payable to Treasury = £1.04 (output tax minus input tax: £7.54 - £6.50)
Rather than calculate the GST for each holiday package sold, the sales calculation is applied on a global basis for each GST period.
The components basis
Where your accounting systems identify the cost, selling price and margin of each component sold, you may calculate GST on sales based on the figures for each component.
Example
The following example shows how this works:
|
Hotels |
Flights |
Ferries |
Transfers |
Tours |
|---|
| Cost |
122,336 |
98,932 |
27,045 |
3,663 |
14,765 |
|---|
| Selling price |
122,336* |
110,665 |
30,420 |
4,628 |
17,645 |
|---|
| % margin |
0% |
10.6% |
11.09% |
20.85% |
16.32% |
|---|
| Margin (£) |
0 |
11,733 |
3,375 |
965 |
2,880 |
|---|
| Rate of GST |
N / A |
0% |
0% |
5% |
5% |
|---|
| Sale GST (£) |
0 |
0 |
0 |
48.25 |
144.00 |
|---|
* agent for no commission
As with the package basis, this calculation is carried out once for each GST return period, using the total figures, rather than on a holiday-by-holiday basis. Additional columns may be added if necessary.
Using the components basis, it is not necessary to calculate input tax for purchases of bought-in components, or the costs of components provided from in-house resources. Your input tax for the purposes of completing the GST return is the charge on expenses (overheads) of running the business
Buying in components of a holiday
Where you buy in components of a holiday, you will be charged GST where the component is supplied by a supplier belonging in Jersey and it is a standard-rated supply.
Wholly zero-rated sales
Where you re-sell a zero-rated component on its own, or together in a package with other components that are all zero-rated for GST, your supply is also zero-rated for GST. You can opt to account for these sales outside the scheme.
Self-billing
Where your normal commercial practice is to remit payments to suppliers, for example hotels, on a periodic basis, you may wish to consider self-billing. This enables the customer (in this case you) to create the supplier’s sales invoice, sending a copy to them.
You must apply to the Comptroller of Taxes to use the procedure, and the supplier must agree. It is however particularly suitable for the holiday industry and can help to keep your accounting simple.
Download GST self billing for the purchasing business (size 89kb)
Components of a holiday provided from your own resources
If a holiday you sell includes components that you provide from your own resources, you must include in your costs the equivalent cost of that component if you had had to buy it in.
For example, if you provide accommodation in a hotel that is part of your GST registration, the cost of that component to be included in the calculation is the rate for the room(s) if not sold as part of a holiday package.
Components of a holiday provided by suppliers not registered for GST
Where you buy in components of a holiday from suppliers that are not registered for GST, the components are treated in the calculation according to whether the supply would bear GST if the supplier were registered.
For example, a taxi service may not be provided by a GST-registered business, but if you use that taxi service for airport transfers as part of the holiday package, the cost would be included in the standard-rated costs.
Examples of other such components may include: pony trekking, bike or car hire, guided walks and pub meals. On occasion, you may also buy in zero-rated international travel from unregistered businesses.
Supplies as an agent
Where you make supplies of a holiday in Jersey as an agent for a commission, the liability of your supply follows that of the main supply of the holiday. If you act as an agent for no commission, you are not making a supply for GST.
If you act as agent in arranging or selling a holiday in which all of the components are zero-rated for GST, your supply to your principal is also zero-rated for GST. Where there are components that are both standard and zero-rated for GST, you must account for GST on the whole of your commission.
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