ABTA
could face a bill of up to £4 million if it loses a case against the amount of
tax it pays on its Guernsey-based insurance companies.
The
two insurance companies cover the travel agent bond replacement scheme and
protect ABTA if a tour operator folds.
Currently,
under Inland Revenue rules, 40% of the profit from the insurance companies has
to be paid back to ABTA in the UK as their owner. The profit is then taxed at
UK levels before being ploughed back into the insurance firms to ensure there
are funds to pay out to the consumer.
But
the Inland Revenue now wants ABTA to return 90% of the profits from the
insurance companies.
ABTA
is fighting the decision following advice from its legal team that the
organisation should not be sending any more than 50% of the profits back to the
UK to be taxed.
The
next step in the case is a hearing with Inland Revenue commissioners in the
autumn. ABTA will argue over what percentage of profits from the insurance
companies would be taxed.
If
it has to pay the full 90%, it will have to fork out £4 million – a significant
slice of its £9.8 million reserves.
ABTA
head of legal services Riccardo Nardi said: “It is a hefty chunk of money and
that’s why we are fighting it.”
The
dispute came to light at the ABTA annual general meeting, during which the
organisation also announced profits were up 21% to £996,000. It paid out £1.8
million for failures in a year that saw 32 members cease trading and 19 fail
financially. The number of complaints rose 10% to 16,500.