The Court of Appeal has found in favour of Her Majesty's Revenue and Customs and against bed bank Secret Hotels (formerly MedHotels), leaving the company with a VAT bill of £7.1m.
The appeal, heard in July, hung on whether Secret Hotels, now owned by Thomas Cook, operated as an agent or principal, the latter making it liable for VAT under the Tour Operator Margins Scheme (TOMS), according to Caterer and Hotelkeeper's sister publication Travel Weekly](http://www.travelweekly.co.uk/Articles/2012/12/03/42449/medhotels+loses+7+million+vat+appeal.html).
An Upper Tribunal in 2011 had ruled MedHotels' agreements with hoteliers meant it had been acting as an agent and was not liable for VAT for the period 2004-2007, when it was owned by lastminute.com.
But today, the appeal court ruled against Secret Hotels and ordered the company to pay costs both for the appeal and the Upper Tribunal case.
Daniel Barlow, an indirect tax partner at Deloitte, said that the case is significant because UK based travel businesses acting as a principal are obliged to account for UK VAT under TOMS.
"Disclosed agents have no such obligation and, therefore, can account for less UK VAT when selling overseas product," he explained.
"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."
Secret Hotels has 14 days to appeal to the Supreme Court.
[MedHotels loses £7 million VAT appeal >>](http://www.travelweekly.co.uk/Articles/2012/12/03/42449/medhotels+loses+7+million+vat+appeal.html)
[Thomas Cook buys Medhotels from lastminute.com >>](http://www.travolution.co.uk/articles/2009/01/07/2076/thomas-cook-buys-medhotels-from-lastminute-com.html)
By Janet Harmer
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