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Medhotels wins £7m VAT appeal

05 March 2014

By Chloe Berman

The UK Supreme Court has issued its long-awaited ruling in the £7m VAT case brought against Secret Hotels2 (SH2L), formerly Medhotels.

The Supreme Court found in favour of Secret Hotels and against HM Revenue and Customs (HMRC) in its judgment today.

The case hung on whether the bed bank was acting as an agent or principal during a period during 2004 to 2007 when Medhotels was owned by lastminute.com.

As a principal it was liable to pay VAT on its margin under the Tour Operators Margin Scheme (Toms).

BDO VAT director Damon Wright described the Supreme Court decision as "great news for the industry".

He added: "There will also be a lot of angry people who will have spent a lot of time and effort trying to deal with the consequences of the earlier court decisions."

An original first-tier tribunal ruled that the company had been acting as a principal and was therefore liable for VAT under Toms. The defeat left the bed bank with a £7m bill for VAT.

An upper tribunal then allowed Secret Hotels2's appeal, but last December the Court of Appeal reversed that decision and restored the decision of the first-tier tribunal.

The hearing at the Supreme Court on 29 January was the bed bank's third appeal.

The case is crucial for many firms in the travel sector in what is known as the dynamic packaging sector with many commentators claiming the business model would not be profitable if firms are liable for Toms.

Since the original Medhotels VAT assessment, many other firms have received similar assessments from HMRC and were hoping for a positive outcome.

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