The Court of Appeal ruling that bed bank Secret Hotels2, formerly Med Hotels, must pay a £7-million VAT bill threatens repercussions “across the industry”, a leading tax expert has warned.

Damon Wright, director of VAT services at MacIntyre Hudson, said: “It seems the Court of Appeal has gone further [than expected] in its interpretation of the Tour Operators Margin Scheme (Toms). This could capture more transactions than those of the bed banks.

“It suggests it will be difficult for a business to fall outside Toms. A business would need to have everything right.”

The Court of Appeal found in favour of HM Revenue and Customs (HMRC) and against Secret Hotels in its judgment yesterday, which hung on whether the bed bank operated as an agent or a principal from late 2004 to 2007 and was liable for VAT under Toms.

Wright said: “It’s a strong decision in favour of Customs and Revenue. The Court has not watered down any of the [earlier] First-Tier Tribunal ruling at all.”

He warned: “I’m not sure even those doing Flight-Plus could not be caught [by Toms].

“If the bed banks are liable for Toms VAT, surely someone else in the chain is in the same position. The VAT requirements appear to go further than the Flight-Plus requirements do.

“It is even more important for a travel agent to be absolutely clear and have their position fully established – without any blurring and any cutting of corners.

“The ruling handed down by the Court of Appeal appears to set requirements that go far beyond Flight Plus. It could have a fundamental impact across the industry.”

Secret Hotels, part of, has 14 days to appeal to the Supreme Court against the Court of Appeal ruling.