Travel counsellors succeed in fight against VAT claims

Agents working for Travel Counsellors have successfully fought claims for unpaid VAT totalling thousands of pounds.

HM Revenue & Customs (HMRC) sent letters to homeworkers who were using the VAT Flat Rate Scheme (FRS) last June stating they had been assessed as ineligible and would have to pay.

The FRS enabled the agents to recoup VAT on some of their business costs, such as office equipment, by paying 10.5% on commission instead of 20%.

However, HMRC claimed because Travel Counsellors the parent company exerted a “dominant influence” over its agents, they should not have been using the scheme.

Agents faced having to repay up to four years’ backdated tax. The average claim was about £6,000, but some agents were presented with much higher demands.

After a lengthy negotiation involving the agents and Travel Counsellors, HMRC issued letters last month saying it had decided “not to pursue the matter”.

However, a new flat rate of 16.5%, due to come in this April, will prevent small businesses, like self-employed travel counsellors, profiting from the tax break.

The HMRC website states the change will “prevent abuse” and make the scheme fairer.

“This will reduce the incentive for firms and agencies to move employees to self-employment to exploit VAT simplification aimed at small businesses.”

HMRC would not comment on “identifiable cases”, but confirmed: “The 16.5% rate will only apply [to] limited cost [traders].” Agents can self-assess for limited cost status, but risk being deemed ineligible if they fail requirements.

Travel Counsellors declined to comment.