HMRC’s reluctance to accept the Supreme Court’s decision in the Medhotels case is making it difficult for other travel companies to get clarity on their tax position, a leading VAT expert has warned.

David Bennett, formerly of Saffery Champness and now of Elman Wall Bennett, said that the dust had yet to settle on the issue with HMRC set to use the courts to pursue other firms.

“A lot of people were surprised by the decision of the Supreme Court, which overturned earlier decision and agreed with Medhotels that it should not be seen to be trading as a principal and accordingly was excused the liability that HMRC had said they had under the Tour Operators’ Margin Scheme,” he said.

A similar case this time against Hotels4u was expected to take place earlier this month but was cancelled at the last minute.

Bennett said this indicated that HMRC “still does not accept the decision of the Supreme Court.”

“Now, in practice they have great difficulty with the way in which the Supreme Court decided that case and it’s making it very difficult for taxpayers in similar area, not just narrowly bedbanks… any business in that horrible grey area between being a clear agent or principle to have clarity and certainty on their vat position.”

TTG revealed earlier this month that HMRC was stepping up its battle with the industry and intended to resist paying back any VAT.

Meanwhile Bennett also warned that certain sectors of the market were in “turmoil” following a European decision last year on the application of Toms.

Although not formally involved, the court basically said the way the UK and other governments interpreted the rules was incorrect.