Martyne Pearson, Senior VAT Manager

There have been a number of changes during year regarding ATOL protection for the consumer.

In April we saw the introduction of the new ‘Flight-Plus’ ATOL arrangement. Flight-Plus has brought so called dynamically packaged holidays into the scope of ATOL. Deals sold by travel agents or tour operators where the consumer has the flexibility to match together their preferred flights with their preferred accommodation within a two-day time period – are now covered under the newly extended ATOL scheme. However, this protection does not apply where the ‘package’ is booked through an airline or where the travel agent or tour operator is acting as an agent for the consumer.

From October, a certificate will be issued to each consumer to clarify whether protection is provided. At present retail agents for ATOL holders do not hold ATOLs themselves but act as agents of others that do. It is a legal requirement that agents inform customers on which ATOL holders behalf they are accepting the booking before payment is made to them. It is expected that post October, the retail agent will have to provide a copy of the ATOL holders certificate to the consumer. There will be more focus on agency agreements in order to ensure that retail agents are acting on behalf of another ATOL holder and do not have a liability themselves to apply for an ATOL or Flight-Plus ATOL.

The VAT and regulatory position on whether a travel business is acting as an agent or principal has never been aligned. For UK VAT purposes, where you act as an undisclosed agent (where the consumer thinks you are the supplier of the services) or principal then your supplies will be caught within the Tour Operators Margin Scheme (‘TOMS’) and VAT will be due on the profit margin obtained from the sale of EU travel products. Where you act as a disclosed agent VAT would only tend to be due where you earn a commission from a UK travel supplier or where you charge an identifiable administration fee etc. to the consumer. Disclosed agents often have a competitive advantage over those accounting for UK VAT under TOMS. The issue of dynamically packaged holidays has always been a grey area as dependent on the contractual position the supplies could fall into either camp.

The VAT treatment of agency supplies has been subject to the ongoing litigation in the ‘Secret Hotels’ (formally Medhotels) case. For those not familiar with the case, the issue in question is whether Secret Hotels acted as an agent or principal for the sale of hotel accommodation. HM Revenue & Customs assessed Secret Hotels for £6m VAT on the basis that they considered it to be making supplies that fell within TOMS. The case currently sits with the Court of Appeal and is expected to be heard in due course. Many businesses are awaiting the outcome of the Court of Appeal’s decision with interest.

With the arrival of Flight-Plus and the ongoing VAT litigation in this area, many businesses are taking steps to ensure that where they do act as an agent that it complies with both regimes. The VAT Consultancy has significant experience of advising businesses in these areas.

Therefore, if you do have any questions regarding your VAT or regulatory position please contact Martyne Pearson on 01962 735350