The Court of Appeal decision to allow HM Revenue and Customs to contest a tax tribunal ruling in the MedHotels casethreatens a delay to clarifying the VAT-status of retailers under the new Flight-Plus Atol regime.
Tax specialist Damon Wright of accountant Grant Thornton warned of the likely hold up as the industry awaits a Department for Transport announcement on the final shape of reforms that include a new Flight-Plus licence for retailers.
One stumbling block to bringing retailers into the Atol scheme has been the fear that acquiring a licence generally held by tour operators would change the status of agents, making them liable for VAT under the Tour Operators’ Margin Scheme (Toms).
The Court of Appeal granted HMRC permission to appeal the MedHotels case on Tuesday. The case hangs on whether the bed bank operated as an agent or a principal, the latter making it liable for VAT, with HMRC claiming it owes £7 million.
The appeal is expected in the summer, with a decision by the end of this year or early next.
HMRC is understood to have given verbal assurances to the Atol regulator, the Civil Aviation Authority, that the new Flight-Plus licence would not change the VAT status of agents. However, Abta has sought more detailed guidance.
In a document Abta submitted to the CAA in December it acknowledged “confirmation from HMRC of their general view that the changes under these reforms are unlikely to have any effect on whether a business is subject to Toms”.
However, Abta wanted “guidance on the specific factors that will be taken into account when considering in what circumstances Toms might apply to Flight-Plus arrangers”.
Wright believes HMRC is now unlikely to issue such guidance for fear of prejudicing its appeal in the MedHotels case.
He said: “We know from previous experience that HMRC is reluctant to get involved in public discussions that might be prejudicial to litigation.
“How HMRC measures agency and principal status is what the MedHotels case is about. So HMRC will probably back away from engaging with the industry over the VAT position for Flight-Plus agents.
“The industry’s hope for standard guidelines on what constitutes agency status could be frustrated for the time being. Potentially, we are going to be left in limbo.”
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