Secret Hotels 2 Limited (formerly MedHotels) loses £7m VAT case
3 December 2012
The Court of Appeal has today issued its judgment in favour of HM Revenue and Customs (HMRC) in the Secret Hotels 2 case, overturning a decision by the Upper Tribunal, released in the Summer of 2011. The Court of Appeal has reached the same conclusion as the First Tier Tax Tribunal, resulting in a reported £7 million VAT bill for Secret Hotels 2 Limited (formally MedHotels).
HMRC has won its argument that, in determining whether a travel business sells product as an agent or principal, one must have regard to “the whole facts of the case” and not just the contracts between the parties.
Daniel Barlow, an indirect tax partner at Deloitte, comments: “This case is very significant because UK based travel businesses acting as a principal are obliged to account for UK VAT under the Tour Operators Margin Scheme (TOMS). Disclosed agents have no such obligation and, therefore, can account for less UK VAT when selling overseas product. This difference in tax treatment means it can be more beneficial from a UK VAT perspective to trade as a disclosed agent in relation to the supply of overseas travel products than it is to buy and sell them. The Court of Appeal says that one must look both at the contracts and what the parties actually do when determining whether a travel business is a principal or agent.
“In light of this decision, and the win for HMRC, many travel intermediaries will no doubt want to confirm whether their position in the supply chain is one of agent or principal.”
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