ABTA issues ruling
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ABTA, the Association of British Travel Agents, has updated its members guidelines in response to the court ruling over tax liabilities for UK businesses.
The case, HMRC Vs. Medhotels, clarified the stance and legal obligations on the tax status of different business models – and their relevant status when buying and selling travel services.
Simon Bunce, head of legal and member services for ABTA said: “This ruling confirms that travel businesses must ensure they understand how their business trades, and what tax they are liable for as a result. ABTA’s guidance note will help our Members to do this. The court stated that there were a number of features evident in the Medhotels’ business model which led to a conclusion that it was not simply supplying agency services to the hotels it was selling but was itself supplying the holidays to the customers in its own name. Those features include Medhotels taking responsibility for providing alternative accommodation where the original accommodation was no longer available and providing compensation itself to customers suffering problems at the hotel. If travel agents want to avoid the tax liabilities of a principal then they must make absolutely sure they’re not just an agent on paper, they act like an agent in practice.”
In essence the ruling qualified that a firm’s behaviour would be taken into account when deciding whether it had been acting in its own name for VAT purposes or as an agent or principal. The court cleared up the confusion by ascertaining that it was not enough to purely call yourself an agent – the business must also conduct itself as an agent too.
ABTA’s guidance document, Agent or Principal: How does your business trade? is now available in the Member area of its website and helps to clarify this status.