Medhotels began its appeal of an £11 million VAT bill at a tribunal in London yesterday, in a case that could have serious implications for the sector.
The Thomas-Cook owned bed bank is fighting Her Majesty’s Revenue and Customs over the huge VAT claim, which is payable under the Tour Operators’ Margin Scheme (Toms).
The case dates back to 2004 – before Thomas Cook bought Medhotels from lastminute.com. A spokesman for lastminute.com said Medhotels was acting as an agent and is therefore not required to pay Toms.
Industry observers say the outcome of the case will help clarify tax liabilities in the accommodation-only sector. Most bed banks dropped their principal status last year and believe acting as an agent means they are exempt from paying VAT under Toms. If Medhotels loses the case, the bed bank sector may have to fundamentally change how it operates.
Defending Medhotels, David Milne QC said the bed bank’s booking conditions for agents and direct customers showed clearly that it was acting as an agent, not a principal.
The terms dictated that the hotel is responsible for any claims or complaints from customers, requests for changes or cancellations to bookings, and any illness or injury suffered by holidaymakers abroad.
He said: “Unless [the booking conditions are] a sham, it is incontrovertible that we have got a situation where a hotel is providing accommodation to a holidaymaker, and Medhotels is acting as an agent for the hotel. I can’t think of any way they could have made it any clearer.”
Milne argued that the VAT is due in the country where the hotel is located. “VAT is payable in Greece [for example] rather than the UK. It is a matter for the Greek authorities if the hotels haven’t been paying up.”
The fact that Medhotels used a net rate, where it can set its own selling price, did not negate the agent/principal status, he said.
“The agent agrees to pay a certain amount to the principal and the agent is entitled to keep anything he earns above that. This is not inconsistent with the agent/principal relationship,” said Milne.
He summed up: “The written agreements are the finishing point as well as the starting point. Our case is really simple.”
Lastminute.com tax director Alan McLintock will be called as a witness today.