The Court of Appeal reversed a decision of the Upper Tribunal, and instead agreed with a decision of the First-tier Tribunal and the position of HM Revenue and Customs (HMRC).
Read the decision: Medhotels
At issue was whether the hotel-marketing website / taxpayer—who operated a website through which customers book and pay the taxpayer for hotel accommodation with a rate set by the taxpayer, which was lower than a rate agreed upon by the taxpayer and the hotels—was acting as:
- A disclosed agent, so that the hotel—not the hotel-marketing website—was acting as the principal and thus was responsible for VAT on the hotel services, or
- A principal, so that the hotel marketing website was responsible for accounting for VAT under the UK’s “Tour Operator’s Margin Scheme” for the jurisdiction where the taxpayer was established (i.e., the UK)
Previously the First-tier Tribunal held for HMRC. However, the Upper Tribunal overturned this decision.
Court of Appeal decision
The Court of Appeal agreed with the First-tier Tribunal's decision that the taxpayer was not a disclosed agent of the hotels, placing particular weight on the fact that the taxpayer dealt with customers in its own name in respect of the use of its website and in certain situations.
The Court of Appeal also noted that for VAT accounting purposes, the taxpayer did not act in a way consistent with it being the agent of the hotels— in particular it did not tell the hotels the amount of its "commission" that it deducted from the payment by the customer. This treatment, thus, made it impossible for the hotels to account for the correct amount of VAT on the accommodation that would be due if the hotels themselves were acting as principal.
This case is viewed as having significant implications in the online travel sector and demonstrates that the capacity in which a taxable person is acting can have a significant impact on the VAT accounting treatment.
It is also important across a wide variety of sectors in helping clarify the approach to determine whether or not a disclosed agency arrangement exists.
Read a December 2012 report [PDF 37 KB] prepared by the KPMG member firm in the UK: Court of Appeal – Secret Hotels2 Ltd (formerly Medhotels) – HMRC appeal upheld – Taxpayer acting as principal