Retailers who are confused or ignorant about whether they act as agents or principals could face problems with Revenue and Customs.
Traditional agents work outside the Tour Operators’ Margin Scheme that levies a simplified form of VAT on sales by suppliers.
The tax is payable through the scheme even on single items such as accommodation.
Difficulties can arise where a travel agency sells a holiday or holiday component as if it was the provider. Agents can also be caught out if they add their own cancellation conditions to a transaction.
David Bennett, VAT director at accountancy firm Deloitte, cited the case of a company that took bookings for accommodation in France and ferry crossings as an agent. It was found liable for VAT because it had its own cancellation policy.
“To be an agent you must pass on the cancellation policy of the principal,” he explained.
Meanwhile, the industry has been warned to ditch the term dynamic packaging for non ATOL-bonded holidays.
Cynthia Barbor, partner at law firm K&L Gates, said: “A lot of confusion stems from the horrible phrase.”