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It’s not just MedHotels grappling with the VAT issue
Tuesday, 26 Mar, 2010
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TravelMole guest comment by Simon Barker, CEO, Conferma
VAT might not have been under the spotlight in Mr Darling’s budget this week, but it has made news in the travel industry with MedHotels losing its appeal against a £7 million VAT bill, something which will have wide implications for the travel sector and could sharply increase liability for VAT.
The corporate travel sector has been in the midst of its own VAT conundrum – namely how to best cope with the proposed ending on 1 January of the longstanding VAT Tour Operators’ Margin Scheme or TOMS. Under this arrangement, HMRC allowed agents such as hotel booking agencies and travel management companies to reclaim VAT on behalf of their clients.
Indeed the viability of the industry’s current hotel billback process, where the payment of a business traveller’s bill is handled by the travel management company or hotel booking agency responsible for the booking, has been threatened by these changes to VAT legislation.
The move could have seen corporate buyers facing sharply increased bills from January 1, with TMCS and HBAs unable to reclaim the VAT on such payment, undoubtedly passing the VAT onto their corporate clients, which they would subsequently have been unable to claim back.
Industry leaders such as Expotel’s Ian Burnley and Trevor Elswood at BSI, on behalf of the Hotel Booking Agencies Association (HBAA), have worked closely with HMRC to find a solution that wouldn’t be too onerous on the corporate client or for the hotels to administer.
As a result of the brokered agreement, billback suppliers now have to state explicitly on all booking confirmations and payment instructions that they are working as an agent on behalf of the corporate client who they have to name.
TMCs and HBAs, no longer able to recover input VAT and charge output VAT, instead charge a disbursement to the corporate client who then makes the claim to recover the input VAT shown.
The corporate’s ability to do so is dependent on the paperwork generated by the hotel meeting the HMRC specification.
The agreement with the Revenue calls for TMCs and HBAs to “identify on their invoices the hotel guest, their employer and ideally each will carry a unique reference number”, such as the unique invoice number a hotel generates for each guest.
This might all sound quite complicated and a far cry from the industry’s desire to streamline expense management processes, but Conferma offers TMCs, their corporate customers and hoteliers a solution to this problem as the Conferma Settlement Plan assigns a unique number to each billback booking – a virtual corporate card number – until the payment is reconciled.
Changes to tax and VAT legislation are never easy but the outcome has generally been positive.
Yes, the changes will add some administrative burden to the TMC or HBA’s billback process that may result in higher fees.
However, they are unlikely to be anything like the 17.5% hike that having to pay the VAT would have meant.
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