Two VAT issues continue to create uncertainty for the travel industry. Firstly, HMRC has announced that it will continue its challenge against Med Hotels and, secondly, it has rejected the VAT reclaims based on travel agent discounts.
Secret Hotels 2 (Med Hotels)
HMRC is seeking permission from the Court of Appeal to continue its challenge. If successful, it can maintain its position until the Court of Appeal decides.
Even then, the dispute could continue on to higher courts, taking several more years before reaching a conclusion. Therefore, any business that has been required to pay VAT under a Med-based decision from HMRC should ensure that it has lodged a formal appeal and had this held to await the final decision in Med Hotels.
If HMRC is refused permission to appeal, the latest court decision will apply and businesses instructed to pay VAT by HMRC can ask for this back. If HMRC get permission to go to the Court of Appeal or the case goes higher, a loss would mean those instructed to pay VAT can then ask for it back, even if this takes more than the four year limit.
However, HMRC may then try and argue that the Med decision does not apply to them, forcing them to either accept that VAT is due or go for their own court hearing.
In the meantime, assessed businesses, and perhaps some those that have not yet been formally challenged, should not sit still. The question of agency and TOMS is clearly under HMRC scrutiny, and is also a significant part of the forthcoming Atol changes.
Therefore, they should be reviewing business models to assess the impact of the new Atol requirements and, at the same time, protect against any risk of a challenge by HMRC of underpaying VAT.
Travel agent discounts
HMRC has rejected the VAT reclaims by travel agents on discounts. However, the claims have some technical merit. Basically, it comes down whether a decision in the European court on discounts by manufacturers also applies to discounts given out of travel agent commissions.
If nobody appeals against HMRC’s rejection, all claims will fall. However, with the reported amounts of VAT claimed, presumably one of the major claimants will formally ask the courts to consider whether its claims are valid. This could then be the lead appeal.
Therefore, agents with rejected claims should be requesting a reconsideration from HMRC. If it still says no (which it probably will) the agent should then consider lodging an appeal and, if possible, seek to get this held behind any lead appeal.
As any claims can only go back a maximum of four years from the date made, anyone that hasn’t made a claim yet, should consider doing so now to protect their position. Especially as, just like Med Hotels, it could be several years before this reaches any conclusion.