Lawyers fighting the £7 million Medhotels VAT case have been told the Supreme Court will hear the case following last year’s Court of Appeal defeat, Travel Weekly understands.

A well-placed source has confirmed the case involving Secret Hotels2, the legal entity fighting the ruling, will go to the higher court.

The case centres on a period when Medhotels was owned by between 2004 and 2007 and whether it was acting as principal and was therefore liable to pay VAT under the Tour Operators Margin Scheme (Toms).

The bed bank saw an appeal brought by Her Majesty’s Revenue and Customs against an earlier decision upheld in the Court of Appeal on December 3 and started a bid to take it to the Supreme Court.

A source close to the case said the decision to take it to the Supreme Court was good news because the Court of Appeal now won’t have the final word on the issue of agent versus principal.

Speaking at the recent Travel Network Group conference in Slovenia, Damon Wright, McIntyre Hudson director of VAT services, said according to the Court of Appeal decision the taxman “won hands down”.

A lot of the methods employed by Medhotels which the court said showed it was the principal were “traditional trading methods of agents”, Wright said.

Following the earlier victories, HMRC inspectors were starting to look beyond the bed bank sector at other agency models, warned Wright.