Bed banks to get tax return after landmark VAT ruling?

A tax tribunal has rejected HMRC’s bid to refer appeals by a series of bed bank firms to the European Court of Justice, in the latest ruling in an ongoing battle surrounding whether such companies should pay VAT on profits.

The ruling could see tens of millions of pounds repaid to the five accommodation suppliers: Alpharooms, Opodo, HotelConnect, Hotels4U, and Lowcost Holidays. The latter organisation went bust in 2016.

HMRC claimed in a first-tier trial last November that the five companies were operating as “intermediaries” under European law, and as such were liable to pay VAT. This was against the rulings of earlier tribunals, which had established the suppliers as “agents” under UK law - and therefore not eligible for VAT, in accordance with the Tour Operators’ Margin Scheme.

However, HMRC contended that a difference in wording in EU and UK law meant the companies were in fact “principles” under EU law, and therefore liable to pay VAT.

Stuart Walsh, head of tax disputes at Pinsent Mason, who acted as Alpharooms solicitor and represented Medhotels over VAT payments, said he believed the court to have made “the right decision” after the latest ruling.

He said that while the challenges surrounding VAT were not the only cause of decline among bed banks, it “certainly did not help”.