LEGAL IAN SKUSE
A STEP IN THE RIGHT DIRECTION FOR APD
THE TRAVEL INDUSTRY WELCOMES CHANGES TO AIR TAX, BUT SAYS IT STILL IMPACTS ON THE UK ECONOMY
T
he travel and aviation industry has been lobbying hard since 1994 to revise or
abolish Air Passenger Duty (APD). While no doubt a valuable source of revenue for the Treasury, the application of APD has caused unfairness for travellers to some destinations, and distorts airline competition, with some passengers preferring to take a short-haul flight to another country before commencing their longer flight sector, resulting in a significant tax saving.
Following extensive lobbying
across the travel trade, some degree of success was experienced in the latest Budget. From April 2015 the two more expensive bands of APD will be abolished, making the tax cheaper for certain long- haul flights in excess of 4,000 miles in distance. A business class Band D flight (including Australasia, Malaysia and Indonesia) attracted an APD levy of £194 from April 1 this year. This will drop to the Band B rate of £138 (plus any retail price index-based rise) in April 2015. Understandably, the lobbying will not stop, following these announcements. Many in the industry feel passengers are paying twice the tax with APD
BUYINGBUSINESSTRAVEL.COM
and also via the Emissions Trading Scheme.
The changes to the tax still leaves a number of anomalies, particularly where two connecting flights are booked rather than one, or there is a connecting flight outside of the UK. Benefactors of the new regime include destinations in the Caribbean which were particularly badly hit by the higher long-haul flight bands of duty. From 2015, all long-haul flights will carry the same band tax rate whether to the Caribbean or to the US, and there is therefore a more level playing field. Critics still point out that the UK has the highest rates of tax for flying in the world and understandably this has an effect on the economy and the sector generally. Many airlines are calling for a total scrapping of the duty to allow the sector to flourish once again. Unfortunately, APD has become a successful means of raising tax for the Treasury, who are unlikely to abolish it, particularly as the tax is collected for the government by the airlines.
IATA CHANGES For those selling business flights, an International Air Transport Association (IATA) licence is a necessary part of
Unfortunately, APD has become a successful means of raising tax for the Treasury, who are unlikely to abolish it
the trading toolkit. Travel agents selling scheduled flights are required to be accredited and have to meet certain minimum financial criteria as a condition of trading. For many agents, payment for scheduled airline ticket sales is through BSP accounting on a monthly basis. IATA has announced that
from June 1 this year, travel agents whose accounts do not have to be audited for Companies House purposes may produce certified rather than audited accounts, but payments for ticket sales through BSP will be on a weekly rather than on a monthly basis.
For many travel management companies, a change to a weekly cycle of BSP will create cash flow problems, particularly where the agent may be “financing the receivables” of its corporate clients – this is where the corporate customer pays the agent monthly in arrears and leaves the agent to finance its hotel, airline and other travel bookings. By going on to weekly BSP, the travel agent may have a far greater sum to finance for his client until payment is made on its invoice if they trade using this model. These problems can be overcome, particularly with a lodged card – so it is the client that pays for ticketing when payment is required. Problems arising out of monthly accounting in arrears and financing receivables can be checked and the TMC put in a better position, where there is a proper contract in place with the corporate customer. These agreements can specify and regulate how payment is to be made and at what points ideally to fit in with BSP payment dates. There are standard clauses to reflect the use of lodged cards, and dispute resolution provisions if there is any disagreement about payment. For smaller TMC’s, the ‘buy now pay later’ model may be seen as attractive to clients in extending credit to the corporate customer by monthly invoicing, but the travel agent paying BSP on a weekly basis puts its own business at risk, particularly where payment may be slow or there is a default by the client. This highlights again the benefits of having good, solid agreements governing the agency relationship.
BBT MAY/JUNE 2014 121
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