UK hotel bed suppliers are expected to come under pressure from overseas hoteliers in Europe over VAT liability as the implications of the MedHotels case hits home.
BDO VAT expert Damon Wright told the McIntyre Hudson Barclays travel seminar last week that a raft of new court cases challenging VAT assessments by Her Majesty Revenue and Customs are expected starting this year.
HMRC is refusing to pay out despite losing a landmark Supreme Court case against the former Lastminute.com owned bed bank MedHotels after it was accused of not paying £11million of VAT under the Tour Operators Margin Scheme.
Wright said the tax man was seizing on any differences in other cases involving other companies to claim that they were not acting as agents and therefore liable for VAT on their margin.
The Supreme Court decided that contract is king and that if a firm has an agreement with the supplier saying it is an agent and one with the customer saying the same then it is an agent.
Wright said, however, this means VAT is still not being paid and he liability would fall on the supplier in the country where the property is located. Although governments in places like Spain are unlikely to opt to pursue hotels for large amounts of VAT, Wright said: “I suspect we will start seeing this unwind.
“We will start to see pressure, probably from suppliers, filtering through saying you are leaving us with a growing liability which we need to address and find a new way of dealing with it.”
Wright believes future challenges to HMRC VAT assessments are likely to succeed because firms have done work to get their contractual arrangements in place. MedHotels was sold to Thomas Cook after the period of the disputed period in the VAT case. Another Cook bed bank Hotels4u is understood to be among the firms preparing a challenge.
Another VAT issue that is in a hiatus, said Wright, was the retail tax’s application to wholesale hotel room business.
The UK has operated since 1996 on the basis that it does not apply and HMRC has brought in an approved commercial VAT planning scheme based on that assumption.
However, last year a European court said counties that apply VAT on wholesale are correct to do so causing “major panic” in the UK.
Wright said the UK government is, however, prepared to wait for a VAT revue to take place before changing the rules here. It’s possible that Europe won’t conduct a review of the tax and will simply tell the UK to change the law, Wright warned.
A third area of uncertainty is VAT on credit card charges, part of a long running dispute involving other sectors as well as travel.
HMRC started assessing for VAT but UK courts have sided with the industry saying the tax is not payable on the charges. But the case has gone to Europe where it is expected to take two to three years before a final judgement is made.
Wright advised firms to continue paying VAT as they currently do but submit claims saying they want to claim it back should the courts rule in their favour. The alternative is to not pay and risk the case is lost and incur penalties as well as having to pay the outstanding VAT.
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