News that HM Revenue and Customs has been granted leave to take the Upper Tier Tax Tribunal decision in the case of Secret Hotels2 (commonly known as MedHotels) to the Court of Appeal will disappoint the many businesses caught up in the dispute over whether Toms VAT applies to them.
However, as noted in yesterday’s TWbusiness:am article ‘MedHotels appeal leaves trade in limbo’, this may have a wider impact for travel businesses considering the implications of the new Flight-Plus Atol requirements and how these may affect their VAT position.
In complying with Flight-Plus status, it is anticipated agents will need to meet a strict set of criteria, such as having agency agreements in place, providing clear information to consumers and issuing Atol certificates. It is reasonable to assume many of these will be consistent with the VAT requirements for being a disclosed agent.
As previously reported, the CAA has sought and received assurance from HMRC that taking on the financial obligations required under Flight-Plus would not automatically make a business a principal for VAT purposes.
However, the simple acknowledgement from HMRC that, of itself, Flight-Plus would not make a business a principal, still leaves open the question of what criteria HMRC consider an agent will need to meet to be accepted as a disclosed agent for VAT purposes.
In MedHotels, HMRC looked beyond the stated terms of contracts between the parties and applied a very broad set of criteria to determine whether MedHotels was acting in its own name and liable for VAT or acting as a disclosed agent and not liable.
These criteria included commercial practices adopted by many travel agents - such as the retention of customers’ payments in unsegregated bank accounts, the payment of compensation to customers, and netting off commission payments from cash remitted to principals - which may still be acceptable under the Flight-Plus requirements, suggesting a real divergence between the Atol and VAT requirements.
As a consequence, travel industry representatives have sought a dialogue with HMRC with a view to agreeing a consistent set of requirements that apply equally across both Atol and VAT.
However, HMRC can be reluctant to undertake public discussions that might be seen as prejudicial to any live litigation.
The main arguments in the Med case are likely to be around whether HMRC's view of the relevant criteria for determining whether MedHotels was an agent or principal for VAT purposes are right.
Therefore, it would not be surprising if, for now, HMRC held back from engaging in any discussions on VAT for Flight-Plus agents, frustrating the industry’s hope for clarity on what constitutes agency status.
It is, of course, also possible that the case could continue beyond the Court of Appeal.
In the meantime, the best advice for any businesses looking to trade as an agent for VAT purposes is to seek full specialist advice on the VAT requirements as soon as possible.
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