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Hamilton
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French Duncan

HMRC Lose Supreme Court Judgement on VAT Treatment of Booking Agents’ Services

12 March 2014

What is it: Supreme Court Judgement

Who does it affect: Hotel booking agents; Hotels receiving services from booking agents

What is the Issue: The case considers whether the company was acting as an agent or a principal when arranging hotel accommodation for customers.

This decision could result in a significant VAT liability arising for hoteliers using booking agents.

Secret Hotels 2 Limited (“the company”) argued that it was acting as an agent and was therefore only liable to account for VAT on the commission charged to the hotel. This treatment would result in VAT not being chargeable in respect of commissions charged to hotels located outside the UK.

However, HMRC argued that the company was not acting as an agent as was instead acting as a principal in supplying the accommodation to the customer and, as a result, these supplies fell within the Tour Operators Margin Scheme (TOMS). This treatment would result in all supplies of accommodation in the EU as being subject to UK VAT.

HMRC won the previous hearing at the Court of Appeal in 2012; however, the Supreme Court has now overturned this decision stating that “…one aspect of economic reality is that it is the hotelier, not the company, who owns the accommodation and it is the customer, not the company, to whom it is ultimately supplied”.

Although this is a significant win for the company, this judgement now raises serious concerns for hotels receiving such services. The judgement concluded that the company is acting as the agent in arranging these supplies and that the hotels are the principals making the supply to the customer. As a result, the hotel is required to account for VAT on the full price charged to the customer (by the agent), rather than on the payment received from the agent. In most cases, the hotel does not always know how much was charged by the agent to the customer and simply receives a net payment from the agent for the purchase of the rooms at an agreed rate.

HMRC has not yet issued a statement in response to the above judgement but it is likely that accommodation providers will now be expected to determine the price charged to the customer by the agent and account for VAT on this higher amount.

Whilst we await HMRC’s comments, we would recommend that all arrangements made through booking agents are reviewed and that pricing and payment processes/policies are clarified as soon as possible.

If you have any questions relating to this decision please contact Claire McCaffray, VAT Senior Manager on 0141 221 2984 or c.mccaffray@frenchduncan.co.uk