Travel agents who change their businesses to comply with the reformed Atol rules risk finding themselves liable to pay VAT under the Tour Operators’ Margin Scheme (Toms), despite government assurances.

Damon Wright, a tax expert at chartered accountants Grant Thornton, told Travel Weekly that last year’s Medhotels tribunal – which left the accommodation-only specialist with a £6 million bill – prompted HM Revenue & Customs’ tax avoidance team to aggressively pursue a range of travel firms.

A Medhotels appeal hearing is due at the end of this month, but Wright said the taxman had acted on the original decision and was claiming substantial sums in unpaid VAT from at least 20 travel companies.

Wright said the appeal could bring some clarity, but the industry must make sure it is involved in discussions between the CAA, HMRC and its avoidance team so the tax authorities understand how the travel industry works.

He fears that due to the timing of the tribunal, just before the summer recess, there will not be a decision until after the current 12-week flight-plus consultation has ended in September.

And if travel firms remain confused or badly informed about their tax position, they could be agreeing to a change in Atol that makes them liable to pay tax under Toms.

As recently as last week, Kate Jennings, head of aviation policy implementation at the DfT, said:  “We’re working closely with Revenue & Customs, who say there is nothing in the proposals that would make flight-plus Atol holders liable for VAT.”  

But Chris Photi, senior partner at accountants White Hart Associates, said he had seen no assurances that agents would not be caught by Toms.

Wright said HMRC’s published guidance had become outdated after the Medhotels case although no update on the position had been made available.