Flight Plus TOMS Open letter to ABTA and CAA

To Luke Pollard/ Andy Cohen

Cc Mark Tanzer

Flight Plus TOMS VAT

Luke, as discussed on the phone I am concerned about HMRC seeing Flight Plus as an opportunity to broaden the net of TOM’s VAT to include travel agents that are dynamically packaging. I therefore think its imperative that ABTA as our industry body, seeks written guidance from HMRC as to “exactly” what contractual arrangements must be put in place once Flight Plus ATOL’s are introduced in April 2012.

My experience of HMRC’s powers is that it could allow them to impose TOMS VAT retrospectively for up to 4 years upon agents, after the introduction of Flight Plus ATOL’s. I have to say I see this as a ticking time bomb, which could bankrupt many unsuspecting agencies.

The Med Hotels case has cost millions and has dragged on for several years, causing uncertainty and disruption to the bed bank sector. The fundamental premise of the HMRC case is highly relevant to Flight Plus. Although, Med hotels had contracts in place stating they acted as the agent of the hotel, HMRC claimed that Med Hotels took financial risk on some transactions and as such their “Behaviour” over rode the contractual position, meaning they should be treated as a principal paying TOMS VAT.

Even though HMRC lost the Med Hotels appeal, they continue to maintain this position and are likely to appeal it further. It therefore does not take a genius to hypothesise, that if as expected HMRC lose this appeal, HMRC will turn their attention to travel agents dynamically packaging.

Having a Flight Plus ATOL licence imposes a requirement for the travel agent to replace flights in the case of an airline collapse and therefore they are clearly taking financial risk on the transaction. Applying the same arguments HMRC have used in the bed bank sector would indicate that HMRC are likely to turn their attention to Flight Plus agents and impose TOMS VAT charges. At the same time we also have AITO telling HMRC that they should impose the same VAT regime on all ATOL holders to ensure a level paying field from their perspective.

Although the CAA have said they have received guidance from HMRC saying that they “see no reason why having a Flight Plus ATOL should mean agents automatically pay TOMS”, no industry wide exemption has been issued, nor has clear guidance.

I think its imperative that ABTA and the CAA jointly approach HMRC to demand written clarification NOW so that its members can take the required steps to ensure they have the right contractual arrangements in place to ensure they can avoid TOM’s VAT.

My concern is that a further cost of  £15 per passenger TOM’s fee would lead many agents to act as the “agent of the customer” to avoid Flight Plus.

If TOMS VAT was also payable, the cost advantage of acting as the agent of the customer would be over whelming. Customers want cheaper holidays and would probably accept this technicality if it that allowed them to avoid further taxation and get exactly the same holiday £25 per person cheaper.

I have written this as an open letter to the Trade press since I believe that agents need to be aware of this threat and it’s the best way of ensuring some action from the CAA.

Steve Endacott

CEO On Holiday Group

For press coverage click here.

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