Tax man considers appeal after bed bank VAT ruling

UK tax inspectors are considering an appeal after a court confirmed bed banks are not liable for VAT on the margins they add to hotel room rates.

The reversal of a previous tax tribunal ruling last week in a case involving Med Hotels was greeted with relief in the trade.

HM Revenue & Customs (HMRC) was known to be targeting other companies and it was feared the tax office would widen its trawl for VAT to other firms previously considered exempt.

Andrew Burnham of accountancy firm MacIntyre Hudson said: “It has stopped Revenue & Customs in its tracks and takes some of the pressure off bed banks and dynamic packaging agents. All the industry’s bed banks had been visited [by HMRC] over the last 18 months.”

Chris Photi, partner at accountants White Hart Associates, also welcomed the court ruling, saying: “It should never have reached this stage.”

However, Photi said: “There is a VAT gap. The correct amount of VAT does need to be paid. But that requires the relevant authorities in other countries to take this as seriously as HMRC. It is difficult to see that happening at the moment.”

At present, hotels are liable for VAT on accommodation bills. But tax authorities are aware agents such as bed banks sell with a price mark-up that often goes undisclosed to a hotel, leaving some VAT unpaid.

Burnham forecast the tax office would appeal, saying: “There is too much at stake.”

A spokeswoman for HMRC said: “We are considering the ruling and looking at our options. It is a complex judgment and we are looking at it in detail. There is a window during which we can appeal.”

Abta said it would study the decision and, if appropriate, publish guidance.

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