Abta members would be wise to read the latest guidance on the legal definition of an agent, says Simon Bunce, head of legal and member services at Abta
Last month’s Supreme Court ruling which found that Medhotels had been acting as an agent in its dealings with consumers and suppliers was one of the most eagerly awaited legal decisions in the recent history of our sector.
The decision was delivered after a long, drawn out process and has profound implications for the way that many travel companies conduct their business.
With a significant VAT liability at stake, and differing judgements at each stage of the legal process, the eventual Supreme Court judgement was a hard fought win by Medhotels which ultimately highlights the fundamental importance of contractual arrangements that are effective, robust and accurately reflect the commercial realities between parties.
For a number of years, and as the Medhotels case played out through the courts, Abta’s guidance note on the differences between the legal definition of an agent and a principal has available to members, outlining steps that companies need to take to ensure that this status is clear and unambiguous.
We have now updated this guidance in light of the Supreme Court ruling and I would strongly recommend that all Abta members read it to gain a basic sense check that they are getting things right and to seek further advice if it raises concerns.
The Supreme Court based its decision on a careful analysis of the contracts Medhotels had in place and companies which may consider that they are acting as agents should not simply assume that this judgement applies positively to them.
They must also take a careful look at their contractual agreements to avoid a potentially unpleasant surprise from the revenue at some stage in the future.
I can’t emphasise strongly enough just how important is a proper understanding of whether you are acting as an agent or a principal when selling travel services, as well as having the correct contractual agreements in place.
A company’s trading status affects not just its tax position but its liability for the services provided, its obligation to provide consumer financial protection and the documentation it must issue during the sales process.
HMRC confirmed in a recent meeting with Abta that they are continuing to consider the implications of the Medhotels decision and their own legal interpretation of it. However, they have also agreed that our updated guidance note provides helpful information for Abta members in assessing their agent or principal status.
Certainly Medhotels and other VAT case law provides real food for thought. If you would like to get further guidance and advice on this and other important legal matters affecting the travel industry, then come along to the Abta Travel Law Seminar on 7-8 May when Abta and industry experts will be debating these issues.
There is still time to register, so I look forward to seeing you there.