Tour operators will look at ways to avoid paying VAT under the Tour Operators’ Margin Scheme (Toms) following the recent Supreme Court ruling on Medhotels, says Abta chairman Noel Josephides.
Writing in this week’s Travel Weekly, Josephides warned: “Many tour operators will wonder if, with appropriate contracts in place, they could act as an agent and not pay VAT.”
The Supreme Court overturned a previous ruling on the VAT liability of bed bank Medhotels, dismissing criteria the Appeal Court used to decide whether the company acted as an agent.
The judgment suggested a company could set its own commission, impose terms on hotels and customers, and have representatives in resort and still be an agent. It is significant because tour operators pay Toms VAT but agents do not.
Josephides said: “I’m surprised people have hailed the decision as liberating. The judgment does not clarify what constitutes acting as an agent for tax purposes or what constitutes acting as a principal.”
The Sunvil chairman said: “We don’t know where we stand. Suddenly, it seems we could be an agent. We pay over £300,000 VAT a year. If all you need to do is say ‘I’m an agent’, you would be a fool not to do it, and hundreds of operators are like us.”
He said Abta issued a cautious response, pointing out the judgment related specifically to Medhotels, and that the association would be seeking clarification from HMRC.