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Alpha International Accommodation v HMRC

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In Alpha International Accommodation v HMRC [2017] UKFTT 778 (27 October 2017), the FTT found that an online travel agent was not acting as principal, so that it was not liable to VAT under the Tour Operators Margin Scheme (TOMS).

Alpha is a travel agent based in the UK and specialising in the online marketing and supply of holiday accommodation to UK travellers. HMRC had assessed Alpha to under-declared VAT in respect of several accounting periods, on the ground that it acted as ‘travel agent’ for the purpose of the principal VAT Directive art 306, so that it should have accounted for VAT under TOMS. Alpha contended that its supplies did not fall within TOMS as it was not acting in its own name but as a disclosed agent between providers and customers. The issue was therefore whether the nature of the arrangements was that the supplies of accommodation were made by the providers to the travellers or by the providers to Alpha, which then provided them to the travellers.

The FTT referred to Secret Hotels2 [2014] UKSC 16 as authority for the proposition that in order ‘to determine the legal and commercial nature of the relationship (between the hotels, the appellant and the customer), it is necessary to interpret the agreement in order to identify the parties’ respective rights and obligations, unless it is established that it constitutes a sham’.

The FTT found that Alpha’s dealings with travellers were all on the basis that it acted as an agent; this was clear from the website terms and invoices, and from the accommodation vouchers provided to travellers. Similarly, the standard contractual terms between providers and Alpha referred to Alpha as agent.

HMRC also contended that some contracts referred to both English law and foreign law; and that it was not established that Alpha was acting as agent under foreign law. The FTT found, however, that the onus was on HMRC to show why foreign law was applicable under the Treaty of Rome; and why, if so, this would produce a different result. HMRC had not discharged this burden. It was therefore appropriate to construe those contracts in accordance with UK law.

Read the decision.

Why it matters: In the wake of Secret Hotels2 (see above) and Hotels4u [2016] UKFTT 718, this is the latest decision in favour of online travel agents. Hopefully, HMRC will now accept that these agents do not act as principals when selling holidays.

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