News

ABTA could face a bill of up to £4 million if it loses a case against the amount of tax it pays on its Guernsey-based insurance companies.

The two insurance companies cover the travel agent bond replacement scheme and protect ABTA if a tour operator folds.

Currently, under Inland Revenue rules, 40% of the profit from the insurance companies has to be paid back to ABTA in the UK as their owner. The profit is then taxed at UK levels before being ploughed back into the insurance firms to ensure there are funds to pay out to the consumer.

But the Inland Revenue now wants ABTA to return 90% of the profits from the insurance companies.

ABTA is fighting the decision following advice from its legal team that the organisation should not be sending any more than 50% of the profits back to the UK to be taxed.

The next step in the case is a hearing with Inland Revenue commissioners in the autumn. ABTA will argue over what percentage of profits from the insurance companies would be taxed.

If it has to pay the full 90%, it will have to fork out £4 million - a significant slice of its £9.8 million reserves.

ABTA head of legal services Riccardo Nardi said: “It is a hefty chunk of money and that’s why we are fighting it.”

The dispute came to light at the ABTA annual general meeting, during which the organisation also announced profits were up 21% to £996,000. It paid out £1.8 million for failures in a year that saw 32 members cease trading and 19 fail financially. The number of complaints rose 10% to 16,500.