Retailers that attempt to bypass the costs of the new Flight-Plus Atol by acting as an agent for the consumer risk becoming liable for VAT, a leading expert has warned.
Agents acting in this way, where they buy a holiday on behalf of a customer, could be liable for VAT on the margin at the standard rate – now 20% in the UK. On accommodation bookings in Europe, they could be liable at the rate in the relevant country.
Retailers acting in the normal way, as agents of suppliers, are not liable for VAT and can reclaim any tax paid on transactions.
VAT adviser Damon Wright of accountancy firm Grant Thornton warned of the risk following publication of the Department for Transport (DfT) Atol Reform Consultation Document last week.
Wright told Travel Weekly: “Where a company acts as an agent for the customer, earning a booking fee or commission, the agent would have to account for the VAT – and do so where the supplier is based. So for a Spanish hotel, the company would have to register to pay the Spanish rate of VAT.
“An agent would pay the standard rate of VAT on the fee or commission in the country where the hotel or car hire is supplied.”
Wright added: “This does not happen at all at the moment. Very few businesses treat themselves as agent for the customer. There is a risk we will start to see Revenue & Customs (HMRC) collect this VAT.
“The VAT complications are a significant hurdle to acting as agent for the customer,” Wright said.
The Civil Aviation Authority said it was unaware of the potential VAT liability. Yet it would no doubt welcome such a handicap to companies acting as agent for the consumer. Both the CAA and DfT are keen to discourage firms from operating in this way, with the DfT arguing consumers may be misled “in the absence of clear information that financial protection is not provided”.
However, industry lawyers have suggested such a requirement would be impossible to enforce. Field Fisher Waterhouse partner Peter Stewart, who has acted in cases against the CAA on behalf of both Abta and Travel Republic, told a recent Abta seminar: “There is no requirement to say to a customer, ‘You don’t have Atol protection’.”
Wright is also concerned about the potential VAT liability of companies that embrace the new Atol regulations – although he concedes the Flight-Plus proposals do not increase the risk of VAT liability.
He said: “Flight-Plus on its own does not change a company’s status from an agent to a principal. But I would be concerned about any business saying ‘We’ve satisfied the CAA that we’re an agent and that is all we need to do’. Businesses need to seek expert advice.”
The DfT believes Flight-Plus Atol holders will not be liable for VAT under the Tour Operators’ Margin Scheme (Toms) – a major concern for retailers since the reform was announced in February. The consultation document states: “The Flight-Plus proposals on their own are unlikely to change whether a travel trade business is subject to Toms.”
But it does suggest companies seek advice on VAT.
The VAT position may become clearer following an appeal in the case of Med Hotels which returns to court in London this week.