The company formerly known as Medhotels has won its battle over a £7.1 million VAT bill after the UK Supreme Court allowed its appeal against HMRC.
The justices, led by Lord Neuberger, said that “[Medhotels] was acting as an intermediary rather than in its own name…”
The judgment said that the contractual documentation between both Medhotels and the hoteliers it used and Medhotels and the customer makes it clear that “the hotel room is provided by the hotelier to the customer through the agency of [Medhotels]”.
It added: “None of the provisions of the contractual documentation relied on by HMRC is inconsistent with Med acting as the hotelier’s agent: they merely reflect the relative bargaining positions of [Medhotels] and the hoteliers.
“They do not alter the nature of the relationship between Med, the hotelier and the customer.”
Damon Wright VAT director at BDO said the judgment looked on first reading like a “hands down win on all points” for Medhotels.
“It will be a lot of relief for a lot of companies, especially those that have been assessed.”
Wright added that he expected the Supreme Court decision to be “the end of it”.
The case centred on whether the company Secret Hotels2 Ltd (formerly known as Med Hotels Ltd) was acting as an agent or a principal and therefore whether it is liable to pay VAT under the Tour Operators’ Margin Scheme (Toms).
Many tax experts in the industry believed the decision would have wide implications for many travel companies, especially if the court had found in favour of HMRC.
It started back to December 2007 when HMRC issued Medhotels with a Toms VAT bill of more than £7 million.
If a company is acting as an agent for a principal, VAT is paid in the member state where the accommodation is located. If, however, the agent operator offers the accommodation in its own name VAT is paid in the member state where the company is established.
HMRC had argued that during the assessment period Medhotels was acting as a principal and must therefore pay VAT in the UK.
A First-Tier Tribunal dismissed Medhotels’ appeal, but a subsequent Upper-Tier Tribunal allowed it. However, the Court of Appeal reversed this. Medhotels then decided to take the case to the Supreme Court.
