Bed bank Medhotels has lost its appeal against a £7m VAT bill, in a case which could have major implications for hotel agents.
The company was claimed by Her Majesty's Revenue and Customs (HMRC) to be liable to pay VAT under the Tour Operator's Margin Scheme (TOMS), during a tribunal held in November 2009.
However, Lastminute.com, which owned Medhotels during the disputed period, said that the company was acting as an agent and was therefore not required to pay TOMS.
The judgement, released this week, stated that the appellant "was not simply supplying agency service to the hotels, but was itself supplying the holiday".
Medhotel's defeat may lead to further investigations into the finances of travel firms by HMRC.
Gerry Myton, head of VAT at accounting and tax advisory group Vantis, said that the judgement is bad news for the travel industry and could be an indication of a wider tax squeeze from HMRC.
"Hotel agents need to look closely at their arrangements and review whether they are legitimately selling bedrooms on a commission basis," he said. "It appears from the tribunal decision that Medhotels were buying hotel rooms and selling them on as principal as opposed to earning a commission by facilitating the sale between hotel and customer."
Launched in 2002, Medhotels is now owned by the Thomas Cook Group. It currently operates as a web-based hotel site and features more than 2,000 three, four and five star hotels, villas and apartments throughout the Mediterranean. Customers are either independent travel agents or individual travellers.
By Janet Harmer
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