Tribunal ruling could hit hotel industry with £250m VAT bill

A First Tier tax tribunal ruling has raised the prospect of the holiday
industry being hit by backdated VAT charges of up to £250m.

Med Hotels lost its appeal against a £7m VAT bill, which is due under the
Tour Operators Margin Scheme, an administrative simplification to European Union
VAT law.

The ruling means that travel businesses sourcing hotel rooms and selling them
to travellers as the agent for the hotel, will either be subject to TOMS
themselves or have a potential liability on commission previously not subject to

If HMRC tries to backdate these liabilities, the industry could be faced with
a bill in excess of £250m, according to Grant Thornton.

Damon Wright, VAT specialist at Grant Thornton said: “The economic crisis has
not been kind to travel companies. Many are struggling and the prospect of a
backdated VAT liability could be very serious.

“Backdating VAT costs could result in companies that are currently just

breaking even, ceasing to trade or being bought by larger businesses. That

could lead to reduced choice and increased prices for the consumer.”

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