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ABTA pays out £2.5m after losing to taxman

EXCLUSIVE by Sarah Thomas

ABTA has forked out £2.5 million after admitting
defeat in its case against the Inland Revenue over its Guernsey-based insurance
companies.

The association paid out £2.4 million – around a
quarter of its reserves – to the taxman at the beginning of March, followed by
a second payment of £200,000 in April, after the Inland Revenue ruled against
it in December following a 12-week court case.

ABTA, which recorded reserves of £9.8 million in its
last financial report, has two insurance companies based in Guernsey which
cover the Travel Agent Bond Replacement Scheme, protecting ABTA if an operator
fails. Newman Street claimed it was exempt from paying tax on profits relating
to controlled foreign company legislation following a rise in the percentage of
profits which had to be repatriated to the UK. The percentage increased from
50% to 90% in 2000.

Head of financial services Mike Monk said ABTA attempted
to prove in a “test case” the companies were established for commercial and not
tax purposes. While the majority of its arguments were accepted, said Monk, the
case failed on a technicality after ABTA failed to prove there was another
means by which it could have achieved its aims.

ABTA decided not to appeal after considering the time
and cost of doing so, said Monk. He stressed ABTA reserves could take the blow.
“It’s £2.5 million we would rather not have paid, but no-one wants to pay tax
at the end of the day.”

Industry figures warned it was bad news for members.

Independent Options development director Sue Foxall
said: “We can’t afford to throw money away. It’s not ABTA’s money – it’s the
members’ money.”

Travel Trust Association
director Todd Carpenter said it could see TABRS premiums hiked up which could
hit ABTA’s rank and file members.

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