p14 City Oct23 21/10/09 18:15 Page 10
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HMRC is testing
any commission is earned from the traveller.
However, what is apparent is any commission
earned by the UK company under a genuine
agency agreement is not subject to UK VAT.
UK agency model
The next question is how the pricing works.
If the agreement with the supplier is on a gross
basis, with the price to the traveller set by the
supplier and not the UK company, and the UK
As Medhotels prepares for an appeal against HMRC following its
company earns an agent’s commission, it is likely
that the supplier will account for VAT in Spain
reported £11m VAT bill, Damon Wright explains the issues in
on both the final selling price and the agent’s
the taxman’s bid to clarify the Tour Operators’ Margin Scheme commission.
However, where net rates are used, where the
agent sets the selling price, it can often be very
THE PAST few weeks have seen several headlines name and that UK company sells to the unclear whether the Spanish supplier is accounting
concerning Medhotels’ VAT appeal against traveller in its own name, the sale to the for VAT on the net rate or the final selling price.
Her Majesty’s Revenue & Customs (see below, other UK company will be treated as In many instances it would appear that it will
TTG October 2). supplied in Spain and possibly subject to be on the net rate, meaning neither the supplier
It is a complicated area, yet it is clear HMRC is Spanish VAT. nor the agent pays VAT on the mark-up.
seeking to test the UK agency model. If it is not ■ If it sells to a traveller, or to another UK firm,
resolved by the Medhotels case, then I believe it as an agent for the Spanish accommodation HMRC challenges UK agents
is likely there will be another case. supplier, earning a commission on that sale, This is where HMRC is challenging UK agents,
Let’s look at the issues. the intermediary supply (commission) will arguing that, rather than being the agent of the
be treated as made in Spain. supplier, the UK company is actually selling in its
The basics own name.
Based on European Union and UK VAT rules: Uncertain VAT liability Therefore, HMRC considers the UK company
■ HMRC considers the supply of holiday In this last example, either the intermediary should be accounting for UK VAT under Toms.
accommodation is subject to VAT in the or the Spanish supplier will be required to Many agents rely on the 2006 International
country where the accommodation is account for any VAT in Spain. Life Leisure tribunal decision.
located. Most UK bed banks or other companies, It is seen as setting out the criteria for
■ HMRC also considers the supply of trading as an agent, believe the Spanish being able to satisfy the requirements for
intermediary services is subject to VAT supplier is liable to account for the VAT acting as an agent.
in the country where the accommodation in Spain. It will be interesting to see whether
is located. This is far from certain as it is the tribunal in the Medhotels case will
■ Any business buying in a supply of travel possible one or both agents refer to the International Life Leisure
services, including accommodation, and will be required to account case, or whether a new set of criteria
selling this to a traveller in its own name is for VAT in Spain especially if will emerge. The tribunal may
subject to VAT under the Tour Operators’ conclude the use of net rates inhibits
Margin Scheme (Toms). an ability to act as an agent.
■ If subject to VAT under Toms, the supplier is Even with a Medhotels victory, if
required to account for VAT, on the margin HMRC finds another agent where the
made, in the EU member state where it is facts are at all different, it may decide
based. to challenge that agent.
If HMRC loses it may seek to refer
Therefore, if a UK company contracts with a the matter to the overseas EU tax
Spanish accommodation supplier, the possible authorities to see who should be
VAT implications are: responsible for accounting for VAT on
■ If it sells on to a traveller in its own name it net rate mark-ups/commission.
will be liable to account for UK VAT under
Toms. Damon Wright is a VAT senior
■ If it sells to a traveller through another UK manager at accountants Grant
company which acts as its agent, with the Thornton. He specialises in the travel
final sale being in its name not the agent’s, it industry and can be contacted on
will be liable to UK VAT. 01293 554119 or by email at
■ If it sells to another UK company in its own damon.wright@gtuk.com
14 23.10.2009
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