By Damon Wright, director of VAT services, MacIntyre Hudson
An HMRC unit in Ty-Nant, Swansea is ramping up its challenge to travel agents on whether VAT is due on debit and credit card charges.
The position for principals is largely undisputed. Per the CJEU (Court of Justice of the European Union) decision in the case of T-Mobile, apart from travel insurance, most additional charges are part of the price for the travel service with any VAT liability determined by the nature of the service supplied.
However, for agents (leisure or travel management companies), the position is far more complex.
In 1998 HMRC agreed that agents' card fees could be exempt from VAT. However, following a UK case known as Bookit, HMRC reversed its guidance in 2006, stating that, unless very specific circumstances were present, the charges were subject to the standard rate of VAT.
These circumstances involve the card data processing, and HMRC’s view is that few, if any, agents can meet the Bookit-based requirements for exempting any card fee income.
However, the industry has always viewed Bookit differently and, as a result, many agents have continued to treat the fees as exempt. So what’s changed?
In October 2010 the CJEU released its decision on AXA Denplan.
This considered fees for the collection of monthly direct debit fees for a dental plan. HMRC believes the decision, that Denplan’s services were debt collection and not exempt, supports its view on travel agent card fees, leading to it systematically writing to agents insisting VAT is paid on all such fees backdated up to four years.
Abta has held discussions with HMRC and released new guidance on when it considers the charges are or are not subject to VAT. It agrees that, where there is a booking or administration fee, any additional card fee is part of this and takes the same VAT liability.
So does this provide all of the answers? Sadly probably not.
Firstly, to decide whether a booking or administration fee is liable to VAT the agent needs to know the status of the person it is acting for, the specific nature of the supply and where that supply is said to take place. Not a simple task at all. That said it can be worth doing as some fees can be zero-rated.
Secondly, where there is no other booking or administration fee, although Abta still believes this is exempt, HMRC insists standalone card fees are standard rated.
Hence, HMRC’s campaign of writing to agents insisting VAT is due on all fees (even though it does in fact agree with Abta’s analysis of other fees), where it appears to be going after the small independents first as these may be less able to challenge this.
Therefore, what, if anything can agents do to protect themselves?
Firstly, review their VAT accounting on service/administration/card fees to establish whether it could have a liability. If yes, consider changing its fees structure to reduce the risk going forward.
Then, if contacted by HMRC:
• insist that HMRC explains why it believes VAT is due and on what (which it still hasn’t done yet);
• consider whether it has overpaid VAT on some fees, and if so, try to reclaim this;
• if a member, contact its consortium to discuss a consortium approach;
• seek advice on how they can ensure that they are doing the same as everyone else;
• pay the VAT and;
• consider lodging an appeal to be stood behind a case being taken by the NEC, which is challenging HMRC’s view on Bookit and AXA and exemption from VAT; or
• submit a hardship application for the appeal to be accepted without having to pay any disputed VAT amount.
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