Travel firms should look at using a trust account if they want to continue acting as an agent in light of the Medhotels VAT case, according to a tax expert.
Lawyers representing Medhotels, now owned by Thomas Cook, sought leave to appeal to the Supreme Court in December after a Court of Appeal ruling that left the bed bank owing £7 million in VAT under the Tour Operators Margin Scheme (Toms).
The case related to a period when the bed bank was owned by Lastminute.com and it switched from being an agent to a principal and back again in the wake of the deaths of two Thomas Cook customers from carbon monoxide poisoning in Corfu.
The decision on whether the bed bank will be allowed to appeal is expected in the next couple of months, but firms who believe they are acting as agents have already been reviewing their business models following the Court of Appeal’s ruling.
Speaking at a seminar run by travel industry accountancy firm MacIntyre Hudson yesterday, Damon Wright, director of VAT services said:
“When the court was deciding whether Med was acting as an agent, one of the first things it looked at was whether money had been held in a trust account, as when money is in a trust it is not liable for Toms.
“A lot of of businesses should be thinking about the use of a trust account as it gives you the maximum defence. If the Medhotels decision is upheld it would make it very difficult for HMRC to say you’re acting as an agent in your own name.”
Wright said HMRC saw the travel industry as a prime target. “They feel there is revenue missing from the travel industry and they’re working hard on it. Now is the time to make sure you’re aware of all the issues.”