Ruling reinforces the need for agents to understand their business practices
ABTA has today updated guidance for Members in response to yesterday’s Court of Appeal ruling on an important test case relating to the tax liabilities of UK travel businesses.
The decision of the Court of Appeal in the case between HMRC and Medhotels over the liability for VAT and the Tour Operators’ Margin Scheme provides more clarity on the tax status of different business models, reinforcing the need for all travel companies to understand their status when buying and selling travel services. ABTA’s guidance document, Agent or Principal: How does your business trade? is now available in the Member area of its website and helps to clarify this status.
The ruling means that the behaviour of a company, as well as contractual documents, will be taken into account when determining whether that company was acting in its own name for VAT purposes or as the agent of a principal. In effect, the Court has said that it is not enough to call yourself an agent, you must actually conduct your business as an agent as well.
Simon Bunce, Head of Legal and Member Services, ABTA said: “This ruling confirms that travel businesses must ensure they understand how their business trades, and what tax they are liable for as a result. ABTA’s guidance note will help our Members to do this. The Court stated that there were a number of features evident in the Medhotels’ business model which led to a conclusion that it was not simply supplying agency services to the hotels it was selling but was itself supplying the holidays to the customers in its own name. Those features include Medhotels taking responsibility for providing alternative accommodation where the original accommodation was no longer available and providing compensation itself to customers suffering problems at the hotel. If travel agents want to avoid the tax liabilities of a principal then they must make absolutely sure they’re not just an agent on paper, they act like an agent in practice.”
ABTA will now meet with HMRC following the ruling to ensure additional clarity on their interpretation of it, and will keep Members up to date on any changes to guidance via its e-newsletter ABTA Today and website abta.com.