Agents could be in for a cash windfall thanks to a tax battle being fought in the world of dentistry.
Travel agents may no longer have to pay VAT on credit and debit card charges and could claim back tens of thousands of pounds.
That could be the outcome if judges in Europe on June 3 back a UK ruling against Her Majesty’s Revenue & Customs.
The travel industry is already braced for APD and national insurance hikes, and is under scrutiny for non-payment of VAT under the Tour Operators’ Margin Scheme. So the latest development offers a welcome reprieve from rising tax bills.
White Hart Associates partner Chris Photi said: “I would be surprised if the European court doesn’t go against HMRC.”
He estimated a firm with a £10 million turnover could claim back as much as £60,000.
In 2008, the UK’s High Court ruled that Denplan, a company that runs a plan for dentists which allows patients to pay a monthly fee for dental services, was exempt from paying VAT on the fees they receive.
HMRC has appealed the decision and it will be heard in the European Court of Justice next week, with a decision expected within three months.
Damon Wright, senior VAT manager at accountancy firm Grant Thornton, said the potential change would affect any retail agent acting for a supplier that levies a separate charge when a customer pays by credit or debit card.
Denplan’s role as an agent between dentists and their customers was similar to the way travel agents worked, he said.
“If the court agrees, a lot of agents could have a claim going back three or four years.
“This will affect a lot of industries, but travel will be the biggest. Businesses will have to make a claim and set out their argument. I imagine there will be discussion with HMRC before anything happens.”
Travel Trust Association operations director Gary Lewis said: “If this happens it would be fantastic. Those who have been paying VAT will be able to claim back, and if not they won’t have to worry about the taxman coming round.
“Even small agents could be able to claim £10,000.”
Somewhere2travel2 director Diane Denney, who currently charges her customers for VAT on credit card charges, said: “Going back three years, this could be a lot of money – a nice boost for your cash flow.
“You would have to decide if it’s worth the time, but I think it could well be.”
Most independent agents currently pay VAT on card charges, but it is thought large retailers have been prepared to risk a claim by HMRC and choose not to. Observers said the court’s decision would help level the playing field.
“Some are paying and some aren’t, so they are carrying a risk,” said Wright.
“This is something Customs would check if they did an inspection.”