A recent UK case involved the issue of whether the taxpayer was acting as an intermediary or was subject to the special VAT scheme for travel agents. The UK legislation is based on EU rules that require member states to apply the special scheme for travel agents who deal with customers in their own name and use supplies provided by other persons who are taxable for VAT purposes.
HMRC argued that the taxpayer was subject to the Tour Operators’ Marginal Scheme (TOMS) as it dealt with its customers in its own name and used services supplied by other taxpayer persons such as hotel companies. In this case the taxpayer would be subject to VAT on all the taxable income from its customers, wherever the accommodation was located.
The taxpayer argued that it was not subject to the special scheme and was liable to VAT in the location where it had booked a hotel for its customer. The taxpayer did not need to register for VAT in other countries as VAT could be charged using the reverse charge mechanism. The Upper Tribunal allowed the taxpayer’s appeal but HMRC took the case to the Supreme Court. The decision of the Supreme Court was that the taxpayer was acting as an agent for the hotels in providing hotel rooms for its customers and that although the taxpayer also rented some rooms itself this was not sufficient to make it a full service travel agent. The Supreme Court therefore held in its decision issued on 5 March 2014 that the taxpayer was an intermediary and was not subject to the special VAT scheme for tour operators.
