MedHotels VAT ruling 'no threat to agents'

MedHotels VAT ruling 'no threat to agents'

Travel agents need not fear a change to their VAT status from the court ruling in the 'Medhotels' case, introduction of the Flight-Plus Atol or proposals to reform Package Travel rules.

David Bennett (pictured), VAT partner at accountants Saffery Champness, assured an Abta travel law seminar in London that none of these developments would make agents liable for VAT under the Tour Operators' Margin Scheme (Toms).

Bennett told the seminar: "Has the agency model been destroyed? No."

Accommodation agency Secret Hotels 2, formerly Medhotels, was found liable for a £7 million VAT bill on the grounds it had acted as a principal rather than an agent.

Bennett said: "The Court decided Medhotels imposed obligations on hotels and was not a true agent. It was a landmark decision for VAT on travel."

He added: "Her Majesty's Revenue and Customs (HMRC) is now busy applying the Court of Appeal decision."

The company was recently granted leave to appeal to the UK Supreme Court. But Bennett said: "I think it unlikely the Supreme Court will move far from the decision."

He told the seminar: "The decision set out a list of features in determining whether a business is acting as agent or principal. Contracts are not the end of the story.

"A company's behaviour is crucial. Who sets the price? Who sets the terms for cancellation, for payments, for amendments? "

Bennett said HMRC's view would be "What is the economic reality?"

He insisted: "HMRC is not interested in Flight-Plus or the Package Travel Regulations. It is interested in the nature of a commercial relationship.

"HMRC has confirmed Flight-Plus does not in itself mean a company is in Toms. It has said the same about the Package Travel Regulations and any changes to them. The PTRs are not what drives whether Toms applies.

However, Bennett warned: "If you are taking a commercial risk, HMRC will never see you as an agent. HMRC are considerably more aggressive on this than 10 years ago."


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