The Court of Appeal has found in favour of Her Majesty’s Revenue and Customs and against Secret Hotels (formerly Medhotels) leaving the company with a VAT bill of £7.1 million.

The appeal, heard in July, hung on whether the bed bank operated as an agent or principal, the latter making it liable for VAT under the Tour Operator Margins Scheme (Toms).

An Upper Tribunal in 2011 had ruled Medhotels’ agreements with hoteliers meant it had been acting as an agent and was not liable for VAT for the period 2004-2007.

But today, the appeal court ruled against Secret Hotels and ordered the company to pay costs both for the appeal and the Upper Tribunal case.

The company has 14 days to appeal to the Supreme Court.

Tax experts have warned the ruling could expose other agents to claim for VAT under Toms. HMRC has given verbal assurances to the CAA that the new Flight Plus licence does not change the VAT status of agents.