How to: Tell whether you’re acting as agent or principal [updated]

The rules on what travel agents should and should not do when trying to maintain a booking agency status have always been complicated.

The recent Med Hotels VAT case has brought in new factors that agents need to consider if they want to make sure they are operating as an agent rather than as a principal.

Here is an update following the case decided by Her Majesty’s Revenue & Customs against Med Hotels (now called Secret Hotels2 Ltd).

Known risks

There are well-established areas of risk for agents, including:

  • You impose on your customer your own cancellation or amendment charges and other contractual terms, rather than sticking to those of the supplier
  • You have guaranteed payment to the supplier, even though your customer might not pay you
  • You are buying products from a supplier and marking up the supplier’s price, or buying products from a supplier at a net rate

The tribunal in the Med Hotels case placed importance on what a contract between the agent and an overseas supplier should say.

It said that there should be certain obligations on an agency to ensure that it is actually acting as an agent and not as a supplier. These obligations (among others) are:

What’s new

  • You are accountable to the supplier for all payments received from customers (including interest on money held)
  • You must agree (or at least regularly disclose) levels of commission taken
  • Your supplier should honour bookings to the customer (as opposed to you, the agent)
  • You should not pay compensation or admit liability if there is a complaint relating to the supplier

Now that we’ve all had time to reflect on the outcome of the case, it shows it is more important than ever to ensure all your agency contracts – both with suppliers and your booking conditions with customers – are drafted properly and regularly reviewed.

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